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MINISTRY OF FINANCE
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SOCIALIST REPUBLIC
OF VIET NAM
Independence - Freedom - Happiness
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No. 2000/2001/QD-BTC
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Hanoi, December 31, 2001
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DECISION OF MINISTER OF FINANCE
ON
THE EXPERIMENTAL APPLICATION OF THE ADJUSTED DECLINING - BALANCE METHOD IN
FIXED ASSET DEPRECIATION
MINISTER OF FINANCE
Pursuant to the Decree No
15/CP dated 2nd March 1993 of the Government providing task, power
and responsibility in the state management of ministries, ministerial agencies;
Pursuant to the Decree No 178/CP dated 28th October 1994 of the
Government providing task, power and organizational apparatus of Ministry of
Finance;
Facilitating enterprises to replace, renew machinery and equipment so as to
apply advanced technology, modern technique best suited business requirements
of enterprises and the economy;
According to the request of the Director General of the Financial Policy
Department;
DECIDES
Article 1:
Experimentally applying the depreciation regime using adjusted declining -
balance method for some fixed assets that have high invisible worn out rate and
need to be replaced and renewed, at five (5) enterprises stipulated in annex I
issued together with this Decision.
During the
period of experimentally applying the depreciation regime using adjusted
declining - balance method, the aforesaid enterprises should ensure attaining
profit from production and business.
Article 2:
The fixed assets used in business that are allowed to deduct the depreciation
expense according the adjusted declining - balance method should simultaneously
satisfy following conditions:
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+ They are
newly invested fixed assets (not yet used), used fixed assets that have
remaining value of more than 70% (compared with original cost of fixed
assets that are being used by the enterprise, or the selling price of the new
fixed assets of the same category or equivalent fixed assets in the market in
relation to the used assets that are purchased by the enterprise).
Article 3:
The determination of depreciation deduction level of fixed assets according to
the adjusted declining - balance method is carried out in following steps:
Steps 1:
Defining the life time of fixed assets:
The
enterprise defines the life time of fixed assets according to the provision of
point (1), Article 15 of the Decision No 166/1999/QD-BTC dated 30th
December 1999 issued by Ministry of Finance on the regime of depreciation
management, use and deduction of fixed assets.
Step 2:
Defining annual depreciation expense of fixed assets in initial years according
to following formula:
Annual
depreciation expense of fixed assets
=
Remaining
book value of fixed assets
x
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In which:
a/ The remaining
book value of fixed assets is defined by the difference between the original
cost and accumulated depreciation of fixed assets at the closing date of the
last fiscal year. With regard to new fixed assets, the remaining value used for
computing the first year depreciation is the original cost of the said fixed
assets.
b/ The
accelerated depreciation rate is determined according to following formula
The
accelerated depreciation rate
=
straight
line depreciation rate
x
adjusted
ratio
- Straight -
line depreciation rate is defined as follows:
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=
1
x
100
Life
time of fixed assets
- The
adjusted ratio which is defined on the basis of life time of new fixed
assets in the hereunder table (stipulated according to Annex I - Decision
No 166/1999/QD-BTC):
Life
time of new fixed assets
(defined
according to Annex I - Decision 166/1999/QD-BTC)
Adjusted
ratio
(time)
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1.5
More
than 4 years to 6 years (4 years < t ≤ 6 years)
2.0
More
than 6 years (t > 6 years)
2.5
- In the
ending years, when the annual depreciation expense defined according to the
adjusted declining - balance method is equal (or less than) to the average depreciation
expense computed by dividing the remaining book value by the remaining life
time years of the fixed assets, then starting from that year the depreciation
expense shall be computed by taking the remaining book value of the fixed
assets to divide by the remaining life time years of the said assets ( see
example at Annex II).
Article 4:
Enterprises that are allowed to experimentally apply depreciation regime
using the adjusted declining - balance method are entitled to compute annual
depreciation expense into reasonable expenditure for income tax purposes.
Article 5:
Other stipulations on the management, use and depreciation deduction of the
fixed assets are still following the Decision No 166/1999/QD-BTC dated 30th
December 1999 of Ministry of Finance.
Article 6:
This Decision shall have the effect from 1st January 2002 to 31st
December 2003.
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Article 7:
The heads of units of Ministry of Finance, the enterprises experimentally
applying the said depreciation method are responsible to implement this
Decision.
FOR THE MINISTER OF FINANCE
VICE MINISTER
Tran Van Ta
ANNEX I
LIST
OF ENTERPRISES PARTICIPATING IN THE EXPERIMENTAL APPLICATION OF DEPRECIATION
REGIME USING THE ADJUSTED DECLINING - BALANCE METHOD
Order
Name
of enterprise
Address
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Vietnam
MTEX limited liabilities company
Tan thuan
processing zone, HoChiMinh city
2
Vietnam
data communication company
No 258, Ba
trieu street, Hanoi city
3
Hatinh
Mineral and Trading company
No 6 Phan
Dinh Phung street, Hatinh town
4
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Bienhoa
industrial park II, Bienhoa city, Dongnai province
5
Viet tuong limited
liabilities company
Bienhoa
industrial park II, Bienhoa city, Dongnai province
ANNEX II
EXAMPLES
OF DEPRECIATION COMPUTATION AND DEDUCTION OF FIXED ASSETS BY ADJUSTED DECLINING
- BALANCE METHOD
(Issued together with the Decision No 2000/QD-BTC dated 31st
December 2001 of Minister of Finance).
Example 1:
Company A purchases brand new equipment producing electronic parts (it is
not the used equipment) at the price of VND 10 millions.
Step 1: the
life time of fixed assets defined according to stipulations of Annex I (issued
together with the Decision No 166/1999/QD-BTC) is 5 years.-
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- The
accelerated depreciation rate by using the declining - balance method is 20% x
2 (adjusted ratio) = 40%
- The
depreciation deduction level of the said fixed assets is computed concretely in
the following table:
Order
Remaining
book value of fixed assets
Computation
Annual
depreciation deduction level
Accumulated
depreciation expense at the year end.
1
10,000,000
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4,000,000
4,000,000
2
6,000,000
6,000,000
x 40%
2,400,000
6,400,000
3
3,600,000
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1,440,000
7,840,000
4
2,160,000
2,160,000
: 2
1,080,000
8,920,000
5
1,080,000
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1,080,000
10,000,000
In which:
+ The
depreciation expense of fixed assets from the first year to the end of the
third year is computed by taking the remaining book value of fixed assets to
multiply with the accelerated depreciation rate (40%).
+ From the
fourth year onward, the annual depreciation expense is equal to
result of the division between the remaining book value of fixed assets (at the
beginning of the fourth year) and the remaining life time years of fixed assets
(2,160,000 : 2 = 1,080,000). [as in the fourth year: the depreciation expense
according to the declining-balance method (2,160,000 x 40% = 864,000) is less than
the average depreciation expense computed by taking the remaining book value of
fixed assets dividing by the remaining life time of fixed assets (2,160,000 : 2
= 1,080,000)].
Example 2:
Enterprise B is using a motor driven machine which has the original purchasing
price of VND 50 millions. This machine has been used for two years, the
deducted depreciation expense is VND 10 millions. The remaining book value of
this fixed asset is VND 40 millions.
Step 1: The
life time of the fixed asset defined according to stipulations of Annex I
(issued together with the Decision No 166/1999/QD-BTC) is 10 years.
Step 2: The
annual depreciation is defined as follows:
- The annual
depreciation rate according to the straight - line method is 10%
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- The annual
depreciation rate of the said fixed asset is computed concretely in the
following table:
Order
Remaining
book value of fixed asset
Computation
Annual
depreciation deduction level
Accumulated
depreciation expense at the year end
1
50,000,000
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2
10,000,000
3
40,000,000
40,000,000
x 25%
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20,000,000
4
30,000,000
30,000,000
x 25%
7,500,000
27,500,000
5
22,500,000
22,500,000
x 25%
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33,125,000
6
16,875,000
16,875,000
x 25%
4,218,750
37,343,750
7
12,656,250
12,656,250
: 4
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40,507,813
8
9,492,187
12,656,250
: 4
3,164,063
43,671,875
9
6,328,125
12,656,250
: 4
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46,835,937
10
3,164,063
12,656,250
: 4
3,164,063
50,000,000
In which:
+ The depreciation expense of
the fixed asset from the third year to the end of the sixth year is computed by
taking the remaining book value of the fixed asset to multiply with the
accelerated depreciation rate (25%).
+ From the
seventh year onward, the annual depreciation expense is the result of the
division between the remaining book value of fixed (at the beginning of the
seventh year) and the remaining life time of the fixed asset (12,656,250 : 4 =
3,164,063). [As at the seventh year: the depreciation expense computed
according to the declining-balance method (12,656,250 x 25% =
3,164,064) is equal to the average depreciation expense computed by
taking the remaining book value of fixed assets dividing by the remaining life
time of fixed assets (12,656,250 : 4 = 3,164,063)].
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Step 1: The
life time of this fixed asset which is self defined by the company according to
point (1), Article 15 of the Decision No 166/1999/QD-BTC is 5 years.
Step 2: The
annual depreciation expense of the fixed asset is defined as follows:
- The life
time of the brand new equipment of the same category defined according to the
Decision No 166/1999/QD-BTC is 8 years. Thus, the adjusted ratio of
depreciation rate is 2.5 times.
- The annual
depreciation expense of the straight - line of the said old equipment is
20%.
- The
accelerated depreciation rate of the said old equipment is equal to 20% x 2.5 =
50%.
- The annual
depreciation expense of the said old equipment is computed concretely in the
following table:
Order
Remaining
book value of fixed assets
Computation
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Accumulated
depreciation expense at the year end.
1
70,000,000
70,000,000
x 50%
35,000,000
35,000,000
2
35,000,000
35,000,000
x 50%
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52,500,000
3
17,500,000
17,500,000
x 50%
8,750,000
61,250,000
4
8,750,000
8,750,000
: 2
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65,625,000
5
4,375,000
8,750,000
: 2
4,375,000
70,000,000
In which:
+ The
depreciation level of the said old equipment from the first year to the
third year is computed by taking the remaining book value of the equipment to
multiply with the accelerated depreciation rate (50%).
+ The depreciation
expense from the fourth year to the fifth year is the result of the division
between the remaining book value of fixed (at the beginning of the fourth year)
and the remaining life time of the fixed asset (12,656,250 : 4 = 3,164,063).
[As at the fourth year: the depreciation expense computed according to the
declining-balance method (8,750,000 x 50% = 4,375,000) is equal to the average
depreciation expense computed by taking the remaining book value of fixed
assets dividing by the remaining life time of fixed assets (8,750,000 : 2 =
4,375,000)].