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THE
MINISTRY OF FINANCE
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SOCIALIST
REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
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No.
228/2009/TT-BTC
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Hanoi,
December 07, 2009
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CIRCULAR
GUIDING THE APPROPRIATION AND USE OF PROVISIONS FOR
DEVALUATION OF INVENTORIES, LOSS OF FINANCIAL INVESTMENTS, BAD RECEIVABLE DEBTS
AND WARRANTY FOR PRODUCTS, GOODS AND CONSTRUCTION WORKS AT ENTERPRISES
THE MINISTRY OF FINANCE
Pursuant to the Securities
Law;
Pursuant to the Government's Decree No. 118/2008/ND-CP of November 27, 2008,
defining the functions, tasks, powers and organizational structure of the
Ministry of Finance;
Pursuant to the Government's Decree No. 124/2008/ND-CP of December 11, 2008,
detailing and guiding a number of articles of the Law on Enterprise Income Tax;
Pursuant to the Government's Decree No. 09/ 2009/ND-CP of February 5, 2009,
promulgating the Regulation on financial management of state companies and
management of state capital invested in other enterprises;
The Ministry of Finance guides the appropriation and use of provisions for
devaluation of inventories, loss of financial investments, bad receivable debts
and warranty for products, goods and construction works at enterprises as follows:
Part I
GENERAL PROVISIONS
Article 1.
Subjects of application
Organizations producing or
trading in goods or providing services and earning taxable incomes as
prescribed by law (below referred to as enterprises).
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2. The appropriation of
provisions by credit institutions complies with the document guiding financial
regimes applicable to credit institutions.
Article 2.
Interpretation of terms
1. Provision for devaluation of
inventories means the provision for a value lost due to the decrease in prices
of in-stock supplies, finished products and goods.
2. Provision for loss of
financial investments means the provision for a value lost due to the decrease
in prices of securities invested by enterprises and for the value of financial
investments lost due to loss-making operation of economic organizations in
which enterprises are investing.
3. Provision for bad receivable
debts means the provision for the lost value of overdue receivable debts and
undue receivable debts which are likely to become possibly irrecoverable due to
insolvency of debtors.
4. Provision for warranty for
products, goods and construction works means the provision for expenses to be
spent on products, goods and construction works which enterprises have sold or
handed over to buyers but are still obliged to repair or improve under
contracts or commitments with customers.
Article 3.
General principles in appropriating provisions
1. Provisions defined at Points
1, 2, 3 and 4, Article 2 of this Circular shall be appropriated in advance as
enterprises' business expenses in the reporting year and constitute a financial
source for enterprises to offset possible losses in the plan year so as to
preserve their business capital and ensure that enterprises do not reflect the
value of inventories and financial investments higher than their market prices
and the value of their receivable debts higher than their recoverable value at
the time of making financial statements.
2. The time of appropriating and
refunding provisions is the end of the accounting year. In case enterprises are
permitted by the Ministry of Finance to apply a fiscal year other than the
calendar year (which begins on January 1 and ends on December 31), the time of
appropriating and refunding provisions is the last day of the fiscal year.
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3. Enterprises shall work out a
regulation on the management of supplies, goods and debts so as to reduce
business risks. The regulation must clearly define responsibilities of each
section or person engaged in the monitoring and management of goods and
recovery of debts.
Enterprises are prohibited from
abusing the appropriation of provisions to additionally account as groundless
provisions so as to reduce their budgetary remittance obligations. Enterprises
that intentionally commit violations will be sanctioned like those committing
tax evasion in accordance with current laws.
4. Enterprises must set up
councils to evaluate the level of provisions to be appropriated and handle
actual loss of in-stock supplies and goods, financial investments and
irrecoverable debts according to this Circular and other relevant legal
documents. Particularly, the provision for warranty for products, goods and
construction works shall be appropriated under contracts or commitments with
customers.
A council is composed of the
director general (or director), the chief accountant, heads of concerned
sections and some experts (when necessary). The enterprise's director general
(or director) shall decide on the setting up of the council.
Part II
APPROPRIATION AND USE OF
PROVISIONS
Basing themselves on the actual
fluctuations in the prices of inventories, prices of securities, value of
financial investments, bad receivable debts and commitments on warranty for
products and goods, enterprises shall take the initiative in determining the
level of each provision to be appropriated, use this provision for proper
purposes and handle it according to the following specific regulations:
Article 4.
Provision for devaluation of inventories
1. Objects for which the
provision is appropriated include raw materials, materials and tools used for
production, supplies, goods and finished products left in stock (including
inventories which are deteriorated, degraded, outmoded, technically obsolete,
unsold or slowly circulated), unfinished products and charges for uncompleted
services (below collectively referred to as inventories) which have their book
original prices higher than the net realizable value and satisfy the following
conditions:
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- Being owned by the stocking
enterprise at the time of making financial statements.
In case raw materials and
materials have a net realizable value lower than their original prices but the sale
prices of products and services made from such raw materials and materials do
not decrease, no provision for devaluation of in-stock raw materials and
materials shall be appropriated.
2. Method of appropriating the
provision
The level of the provision to be
appropriated shall be calculated according to the following formula:
Level
of provision for devaluation of supplies and goods
=
Quantity
of in-stock supplies and goods at the time of making financial statement
x
Book
original price of - inventories
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Net
realizable value of inventories
The original price of
inventories covers buying expenses, processing expenses and other directly
related expenses paid to obtain inventories of the current state and at the current
place as prescribed in Accounting Standard No. 02 - Inventories, issued
together with the Finance Minister's Decision No. 149/2001/QD-BTC of December
31, 2001.
The net realizable value of
inventories (the value expected to be recovered) is the sale price (estimated)
of inventories minus the cost for finishing the product and sale expense
(estimated).
The level of the provision for
devaluation of inventories shall be calculated for each kind of inventories
with decreased prices and summed up in a detailed list which serves as a basis
for accounting this provision into the cost of goods sold (production costs of
all products and goods sold in the period) of the enterprise.
Particularly for uncompleted
services, the provision for devaluation of inventories shall be calculated for
each type of service having a specific charge rate.
3. Handling of the provision:
At the time of appropriating the
provision, if the original price of inventories is higher than their net
realizable value, a provision for devaluation of inventories must be
appropriated under Points 1 and 2 of this Article.
- If the amount of provision to
be appropriated is equal to the balance of the existing provision for
devaluation of inventories, the enterprise is not required to appropriate such
provision;
- If the amount of provision to
be appropriated is higher than the balance of the existing provision for
devaluation of inventories, the enterprise may add the difference to the cost
of goods sold in the period.
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4. Destruction of supplies and
goods for which provisions have been appropriated:
a/ Unsold goods which expired,
are degraded, contaminated or deteriorated and therefore no longer usable such
as pharmaceuticals, food, medical supplies, breeds, livestock and other
supplies and goods and must be destroyed shall be handled as follows:
The enterprise shall set up an
asset-handling council to evaluate to-be-destroyed assets. The evaluation
minutes must specify the names, quantity and value of to-be-destroyed goods,
reasons for destruction, the value recovered from liquidation and the value of
actual damage.
The value of irrecoverable
actual damage of each kind of unsold goods is the difference between the book
value and the value recovered from liquidation (compensations paid by
damage-causing persons or goods liquidation).
b/ Handling competence: The
board of directors (for enterprises with boards of directors) or the members'
council (for enterprises with members' councils): the director general (or
director), for enterprises without boards of directors or members' councils;
and the enterprise owner shall base itself/himself/herself on the minutes of
the handling council and proofs related to unsold goods to decide on the
destruction of the said supplies and goods and the liability of persons related
to these supplies
Level
of provision for decrease in securities prices
=
Quantity
of securities with a decreased price at the time of making the financial
statement
x
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-
Actual
market price of securities
and goods and take responsibility
before the owner and law for their decisions.
c/ Accounting:
The value of irrecoverable
actual damage of unsold goods for which a destruction decision has been issued,
after being offset by the provision for devaluation of inventories, will be
accounted as the cost of goods sold of the enterprise.
Article 5.
The provision for loss of financial investments
1. For securities investments:
a/ Objects: Securities which
satisfy all the following conditions:
- Being securities invested by
the enterprise in accordance with law.
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For securities ineligible for free
trading on the market such as securities restricted from transfer by law or
fund stocks, no provision will be appropriated.
For organizations which have
registered for securities trading such as securities companies and fund
management companies set up and operating under the Securities Law, the
provision for decrease in securities prices shall be appropriated under
separate regulations.
b/ Method of appropriating the
provision:
The level of the provision to be
appropriated for decrease in securities prices shall be calculated according to
the following formula:
- For listed securities: The
actual market price is calculated according to the actual price on the Hanoi
Stock Exchange (HNX), which is the average trading price on the day of
appropriating the provision, or the Ho Chi Minh Stock Exchange (HOSE), which is
the closing price on the day of appropriating the provision.
- For unlisted securities, the
actual market price is:
+ The average trading price in
the system on the date of appropriating the provision, for companies which have
registered for trading in the market of unlisted public companies (UPCom).
+ The average price calculated
according to prices quoted by at least three (3) securities companies at the
time of appropriating the provision, for companies which have not registered
for trading in the market of public companies.
When it is impossible to
determine actual market prices of securities, the enterprise may not
appropriate the provision for decrease in securities prices.
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Enterprises shall appropriate
separate provisions for each kind of invested securities with decreased prices
at the time of making the financial statement and sum them up in a detailed
list of provisions for decrease in securities prices, which serve as a basis
for accounting such provisions as their financial expenditures.
Level
of the provision for loss of financial investments
=
Parties'
actual capital contributions to the economic organization
x
Actual
equity capital
-
Investment
capital of the enterprise
Parties'
total actual capital contribution to the economic organization
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At the time of appropriating the
provision, if the prices of securities invested by an enterprise decrease as compared
with book prices, a provision must be appropriated according to Item b, Point 1
of this Article:
If the amount of the provision
to be appropriated is equal to the balance of the existing provision, the
enterprise is not required to appropriate the provision.
If the amount of the provision
to be appropriated is higher than the balance of the existing provision, the
enterprise shall add the difference to its financial expenditures.
If the amount of the provision
to be appropriated is lower than the balance of the existing provision, the
enterprise shall refund the difference and record it as a decrease in its
financial expenditures.
2. Long-term financial
investments:
a/ Objects: Capital portions
currently invested by an enterprise in other economic organizations set up
under law such as state companies, limited liability companies, joint-stock
companies and partnerships and other long-term financial investments for which
provisions must be appropriated due to loss-making operations of these economic
organizations (except cases of loss anticipated in the business plans compiled
before making investment).
b/ Method of appropriating the
provision:
The maximum level of the
provision for each financial investment to be appropriated is equal to the
invested capital amount and calculated according to the following formula:
In which:
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- The actual equity capital is
determined in the economic organization's accounting balance sheet of the year
preceding the time of appropriating the provision (code 410 of the accounting
balance sheet, promulgated together with the Finance Minister's Decision No.
15/2006/QD-BTC of March 20, 2006).
The ground for appropriating the
provision is the positive difference between the parties' actual capital
contributions to the economic organization and the actual equity capital at the
time of making the financial statement of the economic organization.
The enterprise shall appropriate
separate provisions for different lost financial investments and sum them up in
the detailed list of provisions for loss of financial investments. This list
serves as a basis for accounting these provisions as the enterprise's financial
expenditures.
c/ Handling of the provision:
At the time of appropriating
provisions, if the capital amounts invested in economic organizations are lost
due to loss-making operations of these economic organizations, a provision for
loss of financial investments must be appropriated according to Item b. Point 2
of this Article;
If the amount of the provision
for loss of financial investments to be appropriated is equal to the balance of
the existing provision, the enterprise is not required to appropriate the
provision;
If the amount of the provision
to be appropriated is higher than the balance of the existing provision, the
enterprise shall add the difference to its financial expenditures.
If the amount of the provision
to be appropriated is lower than the balance of the existing provision, the
enterprise shall refund the difference and record it as a decrease in its
financial expenditures.
Article 6.
The provision for bad receivable debts
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- Being evidenced by original
documents, with debtors' comparison and certification of unpaid debt amounts,
including economic contracts, loan agreements, written records of contract
liquidation, debt acknowledgment, debt comparison and other documents.
Amounts with insufficient
grounds to be recognized as receivable debts under these regulations must be
treated as a loss.
- Having sufficient grounds to
be recognized as bad receivable debts, including:
+ Overdue receivable debts
stated in economic contracts, loan agreements or other debt acknowledgments.
+ Undue receivable debts owned
by indebted economic organizations (companies, private enterprises,
cooperatives or credit institutions) which fall bankrupt or are undergoing
dissolution procedures, debtors are missing, have absconded, are prosecuted,
detained or tried by law enforcement bodies, are serving sentences or have
deceased.
2. Method of appropriating the
provision:
The enterprise must estimate the
possible loss or overdue period of debts and appropriate provisions for each
bad receivable debt, accompanied with documents proving these bad debts. In
which:
- For overdue receivable debts,
the level of provisions is:
+ 30% of the value of a
receivable debt which has been overdue for between over 6 months and under one
year.
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+ 70% of the value of a
receivable debt which has been overdue for between 2 years and under 3 years.
+ 100% of the value of a receivable
debt which has been overdue for 3 years or more.
- For undue receivable debts
owned by indebted economic organizations which fall bankrupt or are undergoing
dissolution procedures; debtors are missing, have absconded, are prosecuted,
detained or tried by law enforcement bodies, or are serving sentences, the
enterprise shall estimate the irrecoverable loss for appropriating the
provision.
- After appropriating the
provision for each bad receivable debt, the enterprise shall sum them up in a
detailed list which serves as a basis for accounting them as its management
expenses.
3. Handling of the provision:
- When receivable debts are
determined as bad ones, the enterprise shall appropriate a provision according
to Point 2 of this Article; if the amount of the provision to be appropriated
is equal to the balance of the existing provision for bad receivable debts, the
enterprise is not required to appropriate the provision;
- If the amount of the provision
to be appropriated is higher than the balance of the existing provision for bad
receivable debts, the enterprise shall add the difference to its management
expenses.
- If the amount of the provision
to be appropriated is lower than the balance of the existing provision for bad
receivable debts, the enterprise shall refund the difference and record it as a
decrease in its management expenses.
4. Financial handling of
irrecoverable debts:
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- For economic organizations:
+ In case debtors are bankrupt
or dissolved: Court decisions on declaration of enterprise bankruptcy under the
Bankruptcy Law or competent persons' decisions on dissolution of indebted
enterprises are required. In case of self-dissolution, announcement of
dissolved units or certification by the agency which has decided on the
establishment of these units or organizations is required.
+ In case debtors have
terminated their operation and become insolvent: Written certification of the
termination of operation and insolvency of enterprises or organizations issued
by the agency which has decided on the establishment of enterprises or
organizations which have made business registration for these indebted
enterprises is required.
- For individuals, any of
following documents is required:
+ Death certificates (copies) or
local administrations' certification, for debtors who have deceased without
leaving inheritance for debt payment.
+ Local administrations'
certification, for debtors who are still alive or missing but unable to pay
debts.
+ Arrest warrants or
certification by law enforcement bodies, for debtors who have absconded, are
prosecuted or serving sentences, or local administrations' certification of the
insolvency of debtors or their heirs.
b/ Financial handling:
Actual loss of each
irrecoverable debt is the difference between the book receivable debt amount
and the money amount already recovered (compensations paid by damage-causing
persons, public sale of assets of indebted units or debtors, assets divided
under rulings of courts or decisions of other competent authorities).
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Receivable debts, after the
issuance of handling decisions, must be separately monitored by the enterprise
on its accounting book and recorded off-balance-sheet for between 10 and 15
years from the date of handling and continued to be recovered with different
measures. Any recovered debt amount shall, after subtracting expenses for the
debt recovery, be accounted by the enterprise as other incomes.
c/ When handling irrecoverable
receivable debts, the enterprise must compile the following a dossier,
comprising:
- A minutes of the enterprise's
debt handling council, clearly stating the value of each receivable debt, the
value of recovered debt and the actual loss value (after clearing recovered
amounts).
- A detailed list of receivable
debts which have been written off for use as a basis for accounting, a written
record of debt comparison certified by the creditor and debtor, a written
record of the liquidation of the economic contract, certification of the agency
having decided on the establishment of the enterprise or organization, or other
objective documents evidencing outstanding debts, and relevant documents.
- The accounting book and
documents proving that these debts are not yet recovered and, by the time of
handling debts, the enterprise is reflecting receivable debts on its accounting
book.
d/ Debt-handling competence:
The Board of Directors (for
enterprises with boards of directors) or the Members' Council (for enterprises
with members' councils): the director general or the director (for enterprises
without boards of directors or members' councils) or the enterprise owner shall
base itself/himself/herself on the minutes of the handling council and
documents related to debts to decide on the handling of irrecoverable debts,
take responsibility before law for their decisions and. at the same time, apply
measures to handle responsible persons according to current regulations.
Article 7.
The provision for warranty for products, goods and construction works
1. Objects and conditions for appropriating
the provision. Products, goods and construction works which are manufactured,
sold and handed over by the enterprise in the year and for which the enterprise
has committed in contracts or other documents to provide warranty.
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The enterprise shall estimate
the level of warranty for products, goods and construction works sold or
performed in the year and appropriate the provision for each kind of products,
goods or construction works for which the enterprise has committed to provide
warranty. The total provision for warranty for products, goods and construction
works must comply with commitments with customers but not exceed 5% of the
total sale turnover from products and goods or 5% of the total value of construction
works.
After appropriating the
provisions for each kind of products, goods or construction works, the
enterprise shall sum them up in a detailed list which serves as a basis for
accounting:
- The provision for warranty for
products and goods as sale expenses.
- The provision for warranty for
construction works as general production costs.
3. Handling of the provision:
At the time of appropriating the
provision, if the paid amount for warranty is higher than the amount
appropriated as the provision, the negative difference shall be accounted as
sale expenses. If the amount of the warranty provision to be appropriated is
equal to the balance of the existing provision, the enterprise is not required
to appropriate the warranty provision;
If the amount of warranty
provision to be appropriated is higher than the balance of the existing
provision, the enterprise shall add the difference to its sale expenses, for
the provision for warranty for products and goods, or its general production
costs, for the provision for warranty for construction works.
If the amount of the warranty
provision to be appropriated is lower than the balance of the existing
provision, the enterprise shall refund the difference to:
- Sale expenses, for the
provision for warranty for products and goods.
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Upon the expiration of the
warranty duration, if no warranty amount is spent or the amount of provisions
already appropriated has not been used up, the balance shall be refunded
according to the above principles.
Part III
ORGANIZATION OF
IMPLEMENTATION
Article 8.
This Circular takes effect 45 days from the date of its
signing, applies to the appropriation of provisions by enterprises from 2009,
and replaces the Finance Ministry's Circular No. 13/2006/TT-BTC of February 27,
2006. guiding the appropriation and use of provisions for devaluation of
inventories, loss of financial investments, bad debts and warranty for
products, goods and construction works at enterprises, and other documents on
the appropriation and use of provisions which are contrary to this Circular.
2. Any problems arising in the
process of implementation should be promptly reported to the Ministry of
Finance for study, amendment and supplementation.-
FOR
THE MINISTER OF FINANCE
DEPUTY MINISTER
Tran Van Hieu