Significant Accounting Policies and Recent Accounting Pronouncements

12 Months Ended

May 31, 2018

NOTE 2 - Significant Accounting Policies and Recent Accounting Pronouncements

Use of Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Due to the limited level of operations, the Company has not had to make material assumptions or estimates other than the assumption that the Company is a going concern.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Fair Value of Financial Instruments

ASC 825, “Disclosures about Fair Value of Financial Instruments”, requires disclosure of fair value information about financial instruments. ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of May 31, 2018.

The respective carrying values of certain on-balance-sheet financial instruments approximate their fair values. These financial instruments include cash, accrued liabilities and notes payable. Fair values were assumed to approximate carrying values for these financial instruments since they are short term in nature and their carrying amounts approximate fair value.

Basic and Diluted Loss Per Share

The Company computes earnings (loss) per share in accordance with ASC 260-10-45 “Earnings per Share”, which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive earnings (loss) per share excludes all potential common shares if their effect is anti-dilutive. The Company has no potential dilutive instruments, and therefore, basic and diluted earnings (loss) per share are equal.

The following table sets forth the computation of basic earnings (loss) per share, for the year ended May 31, 2018 and 2017:

	2018			2017
Net loss	$	(48,221	)	$	(36,124	)

Weighted average common shares outstanding (basic and diluted)		5,085,000			5,085,000

Net loss per common share, basic and diluted	$	(0.01	)	$	(0.01	)

Revenue Recognition

The Company’s office is currently based in Nanjing, PRC, but we utilize the U.S. dollar as our functional currency.

The company follows the guidelines of ASC 605-15 for revenue recognition. Revenue is recognized when all the following conditions have been met:

	1.	Pervasive evidence of an arrangement exists: an order has been placed and the customer has prepaid for the product;

	2.	Delivery has occurred or services have been rendered: the product has been shipped from either the Company or one of our suppliers; the product has been delivered and signed for by the customer as evidenced by the shipping company.

	3.	Seller’s price to the buyer is fixed or determinable: the price is fixed at the time of the order and the customer has prepaid prior to shipping; and

	4.	Collectability is reasonable assured: the customer has prepaid for the product prior to shipping.

Customers are allowed to return the products within 30 days for exchange or refund if defects in manufacturing are identified. Prior to the expiration of the 30 day exchange or refund period the cash received is recorded as unrecognized revenue.

Deferred revenue and deferred cost of goods sold result from transactions where the Company has accepted prepayment for the product but all revenue recognition criteria have not yet been met, such as shipped product from the supplier has not arrived at the client for delivery. Deferred cost of goods sold related to deferred product revenues includes direct product costs. Once all revenue recognition criteria have been met, the deferred revenues and associated cost of goods sold are recognized.

Advertising

Advertising expenses for the years ended May 31, 2018 and 2017 were $0 and $0, respectively.

Recent Accounting Pronouncements

In January 2017, the FASB issued guidance which simplifies the accounting for goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, determined in Step 1. The Company is currently evaluating the impact on the financial statements of this guidance.

In January 2017, the FASB amended the existing accounting standards for business combinations. The amendments clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company is currently evaluating the impact on the financial statements of this guidance.

Capstone Systems Inc 10-K