NOTE 9 - CAPITAL LEASES AND COMMITMENTS

6 Months Ended

Jun. 30, 2013

Capital Leases in Financial Statements of Lessee Disclosure [Text Block]

NOTE 9 –CAPITAL LEASES AND COMMITMENTS

CAPITAL LEASES

The Company is currently leasing a factory from Zhongxi Zhengliu Dianlu Transformer Co., Ltd. The term of the lease runs for a period of 24 years beginning January 1, 2005. The lease agreement contains ownership transfer terms at the end of the lease and calls for annual rent payments in the amount of approximately $3,231 for the year ending December 31, 2013 and annual rent payments are expected to increase every year by at least 10% until the expiration of the agreement.

As a result, approximately $153,941 (RMB 950,308) was recorded as leased assets on January 1, 2005 when the lease commenced based on the 10% discounted factor. The lease was classified as a capital lease since a majority of the useful life would be used by the Company. The net leased asset amount was $102,146 and $103,010 as of June 30, 2013 and December 31, 2012, respectively.

As of June 30, 2013, future minimum lease payments which is payable annually are as follows based on the 10% discounted factor:

For the period ending December 31:
2013	$	3,231
2014		3,573
2015		3,952
2016		4,371
2017		4,834
Thereafter		102,360
Less Current Portion		(3,231	)
Long Term Portion	$	119,090

CAPITAL COMMITMENTS

As of June 30, 2013 and December 31, 2012, the Company had capital commitments to acquire land use right of $113,393 and $111,041, respectively.

OPERATING LEASE

The Company is committed to a lease for its office in Xi’an, PRC expiring on August 31, 2014. Minimum lease payments of $14,510 are required for the year ending December 31, 2013.

China Power Equipment, Inc. 10-Q