Circular 55/2002/TT-BTC guiding the accounting regime for foreign-invested enterprises and organizations operating in Vietnam

• Official number: 55/2002/TT-BTC
• Legislation Type: Circular
• Organization: The Ministry of Finance
• Signer: Tran Van Ta
• Issued Date: 26/06/2002

THE MINISTRY OF FINANCE -------	SOCIALIST REPUBLIC OF VIET NAM Independence - Freedom - Happiness ----------
No. 55/2002/TT-BTC	Hanoi, June 26, 2002

CIRCULAR

GUIDING THE VIETNAMESE ENTERPRISES’ ACCOUNTING REGIME APPLICABLE TO FOREIGN-INVESTED ENTERPRISES AND ORGANIZATIONS OPERATING IN VIETNAM

Pursuant to the 1996 Law on Foreign Investment in Vietnam and the 2000 Law Amending and Supplementing a Number of Articles of the Law on Foreign Investment in Vietnam (hereinafter referred collectively to as the Foreign Investment Law);
Pursuant to the May 23, 1997 Commercial Law;
Pursuant to the May 20, 1988 Ordinance on Accountancy and Statistics;
Pursuant to the Government’s Decree No. 24/2000/ND-CP of July 31, 2000 guiding the implementation of the Foreign Investment Law;
Pursuant to the Government’s Decree No. 48/2000/ND-CP of September 12, 2000 detailing the implementation of the Petroleum Law;
Pursuant to the Government’s Decree No. 42/CP of July 8, 1995 regarding the Regulation on legal consultancy practice by foreign lawyers’ organizations in Vietnam;
Pursuant to the Finance Ministry’s Decision No. 1141/TC/QD-CDKT of November 1, 1995 promulgating the Enterprise’s Accounting Regime and Decision No. 167/2000/QD-BTC of October 25, 2000 on the regime of enterprises’ financial reports;
Pursuant to the Finance Ministry’s Decision No. 149/2001/QD-BTC of December 31, 2001 issuing and announcing 4 Vietnamese accounting standards (stage 1),

The Finance Ministry hereby guides the Vietnamese enterprises’ accounting regime applicable to:

- Enterprises with foreign direct investment (FDI); the foreign parties to business cooperation under the Law on Foreign Investment in Vietnam;

- Foreign-invested enterprises and organizations operating not under the Foreign Investment Law such as Vietnam-based resident establishments of foreign companies; branches of foreign lawyers’ organizations in Vietnam operating under the Regulation on legal consultancy practice by foreign lawyers’ organizations in Vietnam (called lawyers organizations’ branches for short); trade branches; organizations and individuals conducting activities of petroleum prospection, exploration and/or exploitation under the Petroleum Law (hereinafter called the petroleum contractors); and other foreign organizations as well as individuals conducting business activities in Vietnam not in forms of investment prescribed in the Law on Foreign Investment in Vietnam (called contractors for short).

Part I

GUIDING THE IMPLEMENTATION OF VIETNAMESE ENTERPRISES’ ACCOUNTING REGIME

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1. The principles for application of the Vietnamese enterprises’ accounting regime

Foreign-invested enterprises and organizations (called enterprises for short) applying the Vietnamese enterprises’ accounting regime must abide by the accounting principles, contents and methods, the financial report-making and presenting methods under the provisions of the Vietnamese enterprises’ accounting regime (issued together with Decision No. 1141/TC/QD-CDKT of November 1, 1995, Decision No. 167/2000/QD-BTC of October 25, 2000 of the Finance Ministry, the Circulars guiding the amendments and supplements to Decision No. 1141/TC-QD-CDKT) and the provisions in this Circular, on the following contents:

- The accounting voucher regime;

- The book-keeping account system;

- The accounting-book regime;

- The financial report system.

When applying the Vietnamese enterprises’ accounting regime, the foreign-invested enterprises and organizations may amend and supplement a number of specific articles and clauses to suit their operation particularities. Cases of amendments and/or supplements prescribed in Items 2, 3, 4 and 5 below must be accompanied with detailed explanation and approved by the Finance Ministry before being effected.

2. Accounting vouchers

2.1. The enterprises must abide by

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2.2. The enterprises may supplement, concretize

a) Based on the list of accounting vouchers prescribed in the accounting voucher regime applicable to the Vietnamese enterprises to opt for types of voucher suitable to the operation of the units or based on the forms of the voucher system issued together with Decision No. 1141/TC/QD-CDKT of November 1, 1995 of the Finance Ministry to make supplements and amendments suitable to the units’ managerial requirements. The supplements and amendments to the enterprise voucher forms must respect the economic contents which should be reflected on the vouchers, the signatures of persons having the responsibility to approve and persons having the material liabilities related to the contents of arising economic operations. Besides, the enterprises may supplement other necessary voucher forms (types of guiding voucher) in service of business management activities. For vouchers of compulsory forms, if amending indexes or reducing indexes, the enterprises must register with the Finance Ministry before the application thereof.

b) For sale invoices subject to the pre-printed forms issued by the Finance Ministry. The self-printed forms of sale invoice must be registered with and approved by the General Department of Tax before using them. In cases where arise transactions on returned sale goods, sale price reduction, trade discount and/or payment discount, the enterprises shall have to abide by the Finance Ministry’s regulations on invoices (Section IV of the Finance Ministry’s Circular No. 122/2000/TT-BTC of December 29, 2000 guiding the implementation of the Government’s Decree No. 79/2000/ND-CP detailing the implementation of the Value Added Tax Law).

3. Book-keeping accounts

3.1. The enterprises must abide by

a) The regulations on book-keeping account system, including the code and appellation, contents, structure and accounting method of each account, the relations concerning the financial reports.

b) The book-keeping account system applicable at the enterprises, which includes the accounts: Class-1 Account to class-9 Account- Accounts in the Accounting Balance Sheet; Class-0 Account- Accounts outside the Accounting Balance Sheet. The enterprises must concretize the book-keeping account system in order to formulate their own book-keeping account systems suitable to the requirements of management of production and business activities at the enterprises.

3.2. The enterprise may

a) Detail all accounts of grade III, grade IV,… according to the enterprises’ managerial requirements, which shall not have to register with the Finance Ministry.

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c) Enterprises which apply accounting software programs may alter a number of methods of summing up information to make financial reports. Class- 0 accounts can be hand-inscribed.

4. Accounting books

4.1. The enterprises must abide by

a) The general provisions on accounting books in the Vietnamese enterprises’ accounting regime regarding the opening of accounting books, the recording of accounting books; the correction of errors; the closing of accounting books; the archival and preservation of accounting books; the handling of violations.

b) The enterprises may select one of the four forms of accounting book entry (Journal- Ledger; Voucher; General Journal or Voucher Journal) for accounting book entries.

c) The enterprise have only one official system of book-keeping accounts and only follow the accounting forms already registered with the Finance Ministry, which are hand-inscribed or put on the accounting software programs to reflect economic transactions arising at the enterprises according to the system of book-keeping accounts selected by the enterprises and the accounting methods prescribed in the Vietnamese enterprises’ accounting regime.

d) The accounting book system must ensure the full reflection and supply of economic and financial information for drawing up financial statements and satisfy other requirements on management of business activities of enterprises.

e) The enterprises’ accounting book system includes:

e1) The general accounting books: The Ledger; the Journal or Voucher Register, depending on each case. These books are used to classify and sum up economic and financial information according to the economic contents of grade-I accounts used in enterprises.

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4.2. Enterprises may supplement, concretize

Enterprises may record accounting books by hand or using the accounting software programs:

a) If the accounting book system is processed and recorded by hand in a selected accounting form, the entries must be made simultaneously on two types of book: The general accounting books (Ledger, Journal) to reflect the fluctuation of grade-I accounts, and the detailed accounting book to reflect the fluctuation of grade- II, grade-III,… accounts; there must be the detailed summary to compare the parity between grade-I accounts and grade-II and grade-III accounts.

b) In case of using the accounting software programs:

b1) If the accounting book system is processed and recorded by the accounting software programs, it must ensure the principle of making entries in a selected accounting form (Vouchers; General Journal,…) and at month-end, the accounting books must be printed out for use and archival.

The system of account processing and recording with computer software may memorize and sum up separate information according to sections for general accounting and detailed accounting; or detailed recording may be made for accounts of grades II and III…, then details shall be summed up to acquire general information on grade-I accounts for making internal accounting reports.

b2) Enterprises may opt for appropriate accounting software programs without having to register them, but these accounting software programs must be compatible with a certain accounting form prescribed in the Vietnamese enterprises’ accounting system.

5. Financial reports

5.1. Enterprises must abide by the following

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b) Enterprises must strictly abide by the regulations on forms, contents, accounting methods, presentation, the time for making and submission of financial reports according the financial report system issued together with Decision No. 167/2000/QD-BTC of October 25, 2000 of the Finance Ministry and amended by the provisions of this Circular.

5.2. Enterprises may supplement, concretize

a) The internal accounting reports;

b) The indexes requiring interpretation in the financial report explanation;

c) The conversion of financial reports according to forms set by their parent companies,…

II. AMENDING, SUPPLEMENTING A NUMBER OF ACCOUNTS

1. Not to use Account 142 - Prepaid expenses (1421- Prepaid expenses)

2. To supplement Account 242 - Long-term prepaid expenses.

This account is used to reflect assets other than tangible fixed assets, financial-leasing fixed assets, intangible fixed assets, long-term investment; arising expenses related to many business operation periods, or prepaid expenses and the carryover of these expenses shall be effected in the subsequent fiscal years.

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2.1. The long-term prepaid expenses include:

- Prepaid expense for rent of fixed assets, workshops, warehouses, working offices, stores,… in service of business in many fiscal years;

-  Infrastructure rental paid in advance for many years and in service of business in many periods;

- Expenses paid in advance for many years for services or business operation labor; advertisement expenses,…;

- Founding expenses;

- Expenses for training of managerial officials, technical personnel; pre-operation expenses, expenses for business operation preparation;

- Expenses for change of business location or reorganization of enterprises;

- Expenses for charge test runs, trial production, which are large and distributed to a number of relevant years;

- Expenses for assorted insurance premiums (fire and explosion insurance, civil liability insurance for transport means owners, vehicle body insurance, property insurance, securities insurance,…) and assorted fees paid in lump sum for many years;

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- Loan interests, interests on financial-leasing fixed assets, paid in advance for many years;

- Exchange rate difference losses at the capital construction investment stage shall be gradually distributed into the financial expenses of the subsequent fiscal years.

- Expenses for the purchase of technical documents, technological transfer permit, trade labels other than intangible fixed assets shall be gradually distributed into business expenses for many years;

- Expenses for research shall be calculated into business expenses of the subsequent fiscal years with the maximum distribution duration of 3 years;

- Expenses for fixed-assets overhauls arising once and being too large must be distributed for many years.

2.2. The accounting of Account 242 must respect some following regulations:

- Only accounting into Account 242 the arising expenses related to the operation results of many fiscal years.

- The calculation and distribution of long-term expenses into business expenses in each accounting period must be based on the nature and extent of each type of expense so as to select rational method and criteria.

- Accountants must monitor in detail each item of long-term prepaid expense having already arisen and been distributed into expense-bearing objects of each accounting period and the remainder not yet distributed into expenses.

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2.3. Reflection structure and contents of Account 242 - Long-term prepaid expenses

The Debit side:

- Increase of long-term assets;

- Long-term prepaid expenses having actually arisen.

The Credit side:

- Decrease of long-term assets;

- Long-term prepaid expenses distributed into business operation expenses in the accounting period;

The Debit balance:

- Other long-term assets and long-term prepaid expenses not yet accounted into business expenses of the fiscal year.

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- When other long-term assets increase, recording:

Debit Account 242 - Long-term prepaid expenses

Debit Account 133 - Deducted VAT (if any)

Credit Accounts 111, 112, 331, 341,…

- When long-term expenses arise (office rent; property, fire and explosion insurance premiums, research expenses; purchase of technical documents, technological transfer permits which are accounted according to the method of gradual distribution into business expenses,…), recording:

Debit Account 242 - Long-term prepaid expenses.

Debit Account 133 - Deducted VAT (if any)

Credit Account 111 - Cash

Credit Account 112 - Bank deposits.

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Credit Account 153 - Instruments, tools

Credit Account 331 - Payable to sellers

Credit Account 334 - Payable to employees

Credit Account 338 - Other payable,  remittable

- For cases where the rentals of fixed assets, infrastructure are paid in advance for many years and in service of business in many periods, recording:

Debit Account 242 - Long-term prepaid expenses

Debit Account 133 - Deducted VAT

Credit Accounts 111, 112.

- When long-term assets decrease, recording:

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Credit Account 242 - Long-term prepaid expenses

- Periodically calculating and distributing long-term expenses related to the operation period according to rational distribution criteria into expenses for production and business activities, sale expenses, enterprise management expenses, recording:

Debit Accounts 627, 641, 642

Credit Account 242 - Long-term prepaid expenses

* For instruments and tools of big values, which are delivered for use only once, they must be gradually distributed into production and/or business expenses, or sale expenses, enterprise-management expenses, possibly by the two following distribution methods:

Twice distribution;

Multi-time distribution.

* Cases of twice distribution:

- When delivering instruments and/or tools, based on the delivery bills, recording:

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Credit Account 153 - Instruments, tools

At the same time making the first distribution (equal to 50% of the value of the instruments and/or tools delivered for use) into general production expenses, or sale expense, enterprise-management expenses, recording:

Debit Accounts 627, 641, 642

Credit Account 242 - Long-term prepaid expenses

- Upon reports on damage, loss or use duration expiry of instruments and/or tools as provided for, the accountants shall distribute their remaining values into general production expenses, sale expenses, enterprise-management expense, according to the formula:

                                 Value of damaged               Value of                        
  The second-                  instruments                   recovered                  Material
  distribution      =          ——————           -      discarded      -      compensations
     amount                              2                           materials                    (if any)
                                                                            (if any)                         

Accountants record:

Debit Account 152 - Materials (value of recovered discarded materials, if any)

Debit Account 138 - Other receivable (material compensation money receivable from persons who caused the damage or loss).

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Credit Account 242 - Long-term prepaid expenses (second-distribution amount).

* In cases of multi-time distribution:

- When delivering instruments, tools or articles for lease, to base on their values, use duration and extents to determine the number of distribution times and the expense amount for each distribution for each type of instrument or tool. The bases for determining the expense amount to be distributed each time may be the use duration or the volume of products or services, which involve of the instruments or tools in each accounting period.

 The accounting method shall be the same as in case of twice distribution.

?For both cases of twice distribution and multi-time distribution, the accountants must monitor in detail each expense item so as to ensure that the total distributed expenses are compatible with the arising expenses and made to the right expense-bearing objects.

- For the payable amounts of interest on financial-leasing fixed assets, when acknowledging debts with the lessors, recording:

Debit Account 212 - Financial-leasing fixed assets (the current prices of fixed assets)

Debit Account 133 - Deducted VAT (if any)

Credit Account 342 - Long-term debts (debt principals payable to fixed asset lessors)

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Debit Account 242 - Long-term prepaid expenses

Credit Accounts 111, 112

Periodically distributing the payable interests on financial-leasing fixed assets into financial operation expenses, recording:

Debit Account 635 - Financial expenses

Credit Account 242 - Long-term prepaid expenses

- For cases of expenses for overhaul of fixed assets, to distribute expenses into many business periods when the overhaul is completed:

Transferring the overhaul expenses into the long-term prepaid expense account, recording:

Debit Account 242 - Long-term prepaid expenses

Credit Account 241 - Unfinished capital construction (2413)

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Debit Accounts 627, 641, 642,…

Credit Account 242 - Long-term prepaid expenses

3. Supplementing Account 158 - Tax-suspension warehouse goods

Where enterprises producing goods for export are entitled to set up tax-suspension warehouses at the enterprises: Raw materials and supplies imported for the production of export goods or the processing of export goods of the enterprises, which are not subject to import tax, must be deposited into the tax- suspension warehouses. Goods in tax- suspension warehouses shall be subject to the supervision of the customs office, tax office and environment office.

Accountants shall open Account 158 - Tax-suspension warehouse goods, in order to reflect the fluctuation and existing volume of goods deposited into tax-suspension warehouses.

The Tax-suspension Warehouse Goods Account shall only reflect the raw materials and materials imported for production and the products turned out by those enterprises themselves, which are kept in tax-suspension warehouses of the enterprises.

3.1. Reflection structure and contents of Account 158 - Tax-suspension warehouse goods

The Debit side:

The value of finished products and goods deposited into tax-suspension warehouses increases in the period.

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The value of finished products and goods deposited into tax-suspension warehouses decreases in the period.

The Debit balance:

The value of finished products and goods left at the end of the period in the tax-suspension warehouses.

3.2. Methods of book-keeping accounting of a number of major economic operations:

a) When the raw materials and materials imported for the production of export goods or the processing of export goods are deposited into tax-suspension warehouses of the enterprises, the import tax and VAT on the imported goods shall not be paid yet, recording:

Debit Account 158 - Tax-suspension warehouse goods

Credit Account 331 - To be paid to sellers

b) When the imported raw materials and supplies are delivered from the tax-suspension warehouses for the production of products for export or processing of export goods, recording:

Debit Account 621 - Direct expenses for raw materials, materials

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c) When finished products are delivered from warehouses or goods of the export products, processed export goods are deposited into tax-suspension warehouses (if any), recording:

Debit Account 158 - Tax-suspension warehouse goods

Credit Accounts 156 (1561, 1562), 155

d) When exporting goods of tax-suspension warehouses (if any):

 Reflecting the cost prices of export goods of tax-suspension warehouses, recording:

Debit Account 632 - The cost prices of sold goods

Credit Account 158 - Tax-suspension warehouse goods

 Reflecting turnover of export goods of tax-suspension warehouses, recording:

Debit Accounts 111, 112, 131

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Credit Account 333 - Taxes and amounts payable to the State

 [3333 - Export tax (if any)]

e) If the export rate is lower than the tax-suspension rate, the enterprises shall have to pay import tax and VAT on import goods (if any) for the difference between the volume of products to be exported and the volume of products actually exported, for which the enterprises have to pay import tax and VAT on imported goods (if any):

 When determining the payable import tax (if any), recording:

Debit Account 632 - The cost price of sold goods

Credit Account 333 (3333) - Taxes and amounts payable to the State (Import tax)

 When determining VAT on imported goods (if any), recording:

Debit Account 133 - Deducted VAT (1332)

Credit Account 333 (33312) - Taxes and amounts payable to the State (VAT on imported goods)

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Debit Account 333 (3333) - Taxes and amounts payable to the State (Import tax)

Debit Account 333 (33312) - Taxes and amounts payable to the State (VAT on imported goods)

Credit Accounts 111, 112

f) Where enterprises are permitted by the Trade Ministry to sell tax-suspension warehouse goods in Vietnamese markets, the enterprises shall have to pay the import tax and other taxes as prescribed.

 When permitted to use tax-suspension warehouse goods, the enterprises must carry out procedures for the export of goods from their tax-suspension warehouses and pay import tax for such goods, recording:

Debit Accounts 155, 156, 632

Credit Account 158 - Tax-suspension warehouse goods

And at the same time, they have to pay import tax on these goods and raw materials:

 When determining the payable import tax (if any), recording:

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Credit Account 333 (3333) - Taxes and amounts payable to the State (Import tax).

 When determining VAT on imported goods (if any), recording:

Debit Account 133 - Deducted VAT (1332)

Credit Account 333 (33312) - Taxes and amounts payable to the State (VAT on imported goods).

When actually paying the import tax and VAT on imported goods, recording:

Debit Account 333 - Taxes and amounts payable to the State (if any)

(3333- Import tax)

Credit Accounts 111, 112

g) Where raw materials and/or products kept at tax-suspension warehouses are delivered for sale on the domestic market:

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Debit Account 632 - Cost price of goods on sale

Credit Account 158 - Tax - suspension warehouse goods.

At the same time, paying import tax on those goods and raw materials and accounting like the above entries.

 Reflecting the turnover of those goods delivered for sale on domestic market, recording:

Debit Accounts 111, 112, 131

Credit Account 511 - Turnover of goods sale and service provision.

Credit Account 333 - Taxes and amounts payable to the State (33311)

h) Where the tax-suspension warehouse goods decay and/or deteriorate in their quality, failing to satisfy the export requirements, such goods must be re-exported or destroyed:

In case of re-import, recording

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Credit Account 158 - Tax-suspension warehouse goods

At the same time, the import tax must be paid on these goods and raw materials, determining the payable import tax, recording like entries in (f); when actually paying tax, recording:

Debit Account 333 - Taxes and amounts payable to the State (if any)

(3333 - Import tax)

Credit Accounts 111, 112

In case of re-export, recording:

Debit Account 331 - Payable to sellers

Debit Account 333 (3333) - Taxes and amounts payable to the State (VAT on imported goods)

Credit Account 158 - Tax-suspension warehouse goods

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Debit Account 632 - Cost prices of goods (destroyed goods, raw materials)

Credit Account 158 - Tax- suspension warehouse goods

If allowed not to pay import tax on the destroyed goods and/or raw materials, recording:

Debit Account 333 - Taxes and amounts payable to the State (if any)

(3333- Import tax, 33312 - VAT on imported goods)

Credit Account 158 - Tax-suspension warehouse goods (the payable import tax amount).

III. GUIDING THE ACCOUNTING OF A NUMBER OF PARTICULAR ECONOMIC OPERATIONS

1. Accounting and handling the exchange rate differences

1.1. Exchange rate differences and handling thereof

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The currency used in book-keeping entries at units is Vietnam dong, or possibly foreign currency approved by the Finance Ministry for book-keeping entries and making of accounting reports.

If enterprises use currency other than those used in making book-keeping entries, when converting the other currencies into those used for recording the accounting books, the exchange rate differences shall arise.

The exchange rate differences are the differences arising from the conversion of an amount of other currencies into the currencies used in book-keeping entries at different exchange rates.

The exchange rate differences arise mainly in the following cases:

a) The exchange rate differences actually arising in the period (the implemented exchange rate differences) mean the differences between the other currencies and those used for recording accounting books at different exchange rates. Such differences often arise in transactions of buying and selling goods and services; repayment of payable debts, advance for goods purchases, or provision of loans in currencies other than those used for recording accounting books. For the above-mentioned cases, the exchange rates between the other currencies and the currencies used for recording the accounting books shall be inscribed according to the exchange rates of the transaction day (the actual transaction exchange rates or the inter-bank average exchange rate announced by the State Bank at the time when the transactions arise).

The principle for primary accounting of a transaction in foreign currency is that it must be recorded according to the exchange rate between the currency used for book-keeping entries and the other currencies on the transaction days.

There are two kinds of exchange rate differences actually arising in the period (the implemented exchange rate) at the enterprises:

 The exchange rate difference actually arising in the period from capital construction activities (pre-operation period);

 The exchange rate difference actually arising in the period from business activities.

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At this time, the money items (the balance of cash accounts, bank deposits, receivable debts, payable debts simultaneously reflected in the currencies used for book-keeping entries and in currencies other than the currencies used for book-keeping entries) must be reported in the exchange rate at the end of the fiscal year (December 31). Therefore, at such time (December 31), the enterprises must re-evaluate the money items at the exchange rate at the end of the fiscal year according to the inter-bank average exchange rate announced by the State Bank on December 31 every year.

The exchange rate differences on the date of making the accounting balance sheet at the end of the fiscal year (December 31) due to the re-evaluation of money items shall also be divided into two types:

 The exchange rate difference on the date of making the accounting balance sheet at the end of the fiscal year (December 31) due to the re-evaluation of money items related to construction investment stage;

 The exchange rate difference on the date of making the accounting balance sheet at the end of the fiscal year (December 31) due to the re-evaluation of the money items related to the production and business stage.

c) For the enterprises which use financial instruments as reserves for foreign exchange risks, the borrowed amounts and payable debts in foreign currencies shall be accounted according the actually arising exchange rates. The enterprises must not re-evaluate the borrowed amounts and payable debts in foreign currencies, for which the financial instruments have been used as reserves for foreign exchange risks.

1.1.2. Handling of exchange rate differences:

a) The exchange rate differences arising in the period and differences arising from the re-evaluation at the end of the period, which are related to production and business activities, shall be handled as follows:

The entire exchange rate differences arising in the period and the exchange rate differences arising from the re-evaluation at the year-end (December 31) or the last day of the fiscal year other than the calendar year (already approved) of the money items shall be memorized directly into expenses for or income from the financial activities on the business result report of the fiscal year.

Enterprises must not divide profits on interests on the exchange rate differences arising from re-evaluation at the end of the fiscal year of the money items.

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Step 1: While in the construction investment period, the implemented exchange rate differences and the exchange rate differences arising due to re-evaluation at the end of the fiscal year of the monetary item (December 31) (loss or profit) shall be reflected in accrual on the accounting balance sheet (Item Account 413 - Exchange rate difference).

Step 2: Upon the completion of the construction investment process:

- The exchange rate differences actually arising in the construction investment period (exchange rate loss or profit) shall not be calculated into the value of fixed assets but fully carried over into the financial operation expenses or incomes in the fiscal year when the fixed assets and investment assets are put into operation.

- The exchange rate differences arising due to the re-evaluation of monetary items at the time of final settlement, hand-over of fixed assets for putting into operation (exchange rate loss or profit) shall not be calculated into the value of fixed assets but distributed into financial operation income or expenses of the subsequent business periods with the maximum duration of 5 years (as from the time the projects are put into operation), which must conform to the utility duration of the fixed assets.

1.2. Accounting of exchange rate differences and accounting of the handling of exchange rate differences.

1.2.1. Accounting of exchange rate differences arising in the period:

1.2.1.1. Accounting and handling of exchange rate differences arising in the period of business activities:

a) When buying goods, services:

- If exchange rate losses arise in the transaction of purchasing goods and/or services, recording:

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Debit Account 635 - Financial expenses (exchange rate losses)

Credit Accounts 111 (1112), 112 (1122) (the average exchange rate, advance import or export exchange rates).

- If exchange rate profits arise in the transactions of purchasing goods and/or services from the outside, recording:

Debit Account 151, 152, 153, 156, 157, 211, 213, 627, 641, 641,… (the exchange rate on transaction date)

Credit Account 111 (1112), 112 (1122) (the average exchange rate; the advance import or export exchange rates)

Credit Account 515 - Financial operation turnover (exchange rate profits)

b) When paying the payable debts (debts payable to sellers, long-term and short-term loan debts, internal loan debts,…):

- If exchange rate losses arise in debt-repayment transactions, recording:

Debit Accounts 331, 311, 315, 341, 342, 336,… (actual exchange rate on transaction date)

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Credit Accounts 111 (1112), 112 (1122) (the average exchange rate; the advance import or export exchange rates).

- If exchange rate profits arise in debt-repayment transaction, recording:

Debit Accounts 331, 311, 315, 341, 342, 336,… (actual exchange rate on the transaction date)

Credit Account 515 - Financial operation turnover (exchange rate profits)

Credit Account 111 (1112), 112 (1122) (average exchange rate; advance import or export exchange rates)

c) Upon recovery of receivable debts (from customers, from internal subjects,…)

- If exchange rate difference losses arise in the transactions of receivable debt repayment, recording:

Debit Accounts 111 (1112), 112 (1122) (the exchange rate of the transaction date)

Debit Account 635 - Financial expenses (exchange rate losses)

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- If exchange rate difference profits arise in transaction of receivable debt repayment, recording:

Debit Account 111 (1112), 112 (1122) (the exchange rate of the transaction date)

Credit Account 515 - Financial operation turnover (exchange rate profits)

Credit Accounts 131, 136 (the actual exchange rates)

d) When turnovers, other incomes arise in currency units other than those used for book-keeping entries, recording:

Debit Accounts 111 (1112), 112 (1122), 131, 138 (the exchange rate of the transaction date)

Credit Accounts 511, 711 (the exchange rate of the transaction date)

1.2.1.2. Accounting and handling of exchange rate differences arising in the period of investment activities:

a) When buying from the outside goods, services, fixed assets, equipment, construction and/or installation volumes handed over by contractors:

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Debits Accounts 151, 152, 211, 213, 241,… (the exchange rate of the transaction date)

Debit Account 413 - Exchange rate difference (4131) (exchange rate losses)

Credit Accounts 111 (1112), 112 (1122) (the average exchange rate; or the advance import/export exchange rates)

- If exchange rate difference profits arise in transactions of purchase from the outside of goods, services, fixed assets, equipment, construction and/or installation volumes handed over by contractors, recording:

Debit Accounts 151, 152, 211, 213, 241,… (the exchange rate of the transaction date)

Credit Accounts 111 (1112), 112 (1122) (the average exchange rate, or the advance import/export exchange rates)

Credit Accounts 413 - Exchange rate differences (4131) (exchange rate profits)

b) When repaying payable debts {debts payable to sellers, long-term and short-term loan debts, internal loan debts (if any),…}:

- If exchange rate difference losses arise in transactions of repayment of payable debts, recording:

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Debit Account 413- Exchange rate difference (4131) (exchange rate losses)

Credit Accounts 111 (1112), 112 (1122) (average exchange rate, the advance import/export exchange rates)

- If exchange rate difference profits arise in transactions of repayment of payable debts, recording:

Debit Accounts 331, 311, 315, 341, 342, 336,… (actual exchange rate)

Credit Accounts 111 (1112), 112 (1122) (average exchange rate, advance import/export exchange rates)

Credit Accounts 413 - Exchange rate difference (4131) (exchange rate profits)

c) The exchange rate differences (losses or profits) arising in the investment period, which are accrued in the investment period till the time of making final settlement and putting the projects into operation, shall be handled by transferring the entire Debit balance or Credit balance of Account 413- Exchange rate difference- into financial expenses or financial operation turnover in the year.

- Carrying over the entire exchange rate difference losses arising in the investment period into the financial expenses of the fiscal year when the investment projects start operating commercially, recording:

Debit Account 635 - Financial expenses

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- Carrying over the entire exchange rate difference profits having arisen in the investment period into the financial income of the fiscal year when the investment projects start operating commercially, recording:

Debit Account 413 - Exchange rate difference (4131) (exchange rate profits having already arisen)

Credit Account 515 - Financial operation turnover.

1.3.2. Accounting of year-end re-evaluation exchange rate differences

a) Accounting of year-end re-evaluation exchange rate differences:

At the time (December 31) the enterprises have to re-evaluate the money items of foreign currency origins (currencies other than those officially used in book-keeping) at the exchange rate at the end of the fiscal year (December 31) according to the inter-bank average exchange rate announced by the State Bank on December 31 every year, the exchange rate differences (profits or losses) may arise. The enterprises shall have to detail the exchange rate differences arising due to the re-evaluation of these money items of the capital construction investment activities (pre-production and business stage) (4131) and the production and business activities (4132):

- If exchange rate profits arise, recording:

Debit Accounts 111 (1112), 112 (1122), 131, 136, 138, 311, 315, 331, 341, 342,…

Credit Account 413 - Exchange rate difference (4131, 4132)

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Debit Account 413 - Exchange rate difference (4131, 4132)

Credit Accounts 111 (1112), 112 (1122), 131, 136, 138, 311, 315, 331, 341, 342,…

b) Handling of year-end re-evaluation exchange rate differences:

b1) Handling of exchange rate differences arising from the year-end re-evaluation of money items of production and business activities:

Enterprises may handle the year-end re-evaluation exchange rate differences by the following method:

Transferring the entire year-end re-evaluation exchange rate differences into financial expenses (in case of exchange rate losses) or the financial operation turnovers (in case of exchange rate profits) to determine the business operation results:

- Transferring the year-end re-evaluation exchange rate difference profits into financial operation turnovers, recording:

Debit Account 413 - Exchange rate difference (4131)

Credit Account 515 - Financial operation turnover (exchange rate profits)

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Debit Account 635 - Financial expenses (exchange rate losses)

Credit Account 413 - Exchange rate difference (4131)

It is noted that the exchange rate differences not yet implemented do not serve as basis for determining the business profit amounts to be divided to capital-contributing parties.

b2) Handling of the exchange rate differences arising from the year-end re-evaluation of money items of capital construction investment activities:

- At the stage of on-going capital construction investment when enterprises have not yet commenced their operation, the year-end re-evaluation exchange rate differences shall not be handled but reflected on Account 413- Exchange rate difference, the Debit balance, or Credit balance shall be reflected on the accounting balance sheet.

- At the stage of investment completion, starting production and business activities, the Debit balance or Credit balance on Account 413- Exchange rate differences reflecting the exchange rate differences arising from the re-evaluation of money items at the end of each fiscal year (excluding the re-evaluation of money items related to construction investment activities at the time of handing over the assets for putting into operation) shall be handled as follows:

 Transferring the Debit balance Account 413 - Exchange rate differences (4132) to Account 242- Long-term prepaid expenses for gradual distribution of the exchange rate loss amounts of the construction investment stage into the subsequent fiscal years for 5 years at most (as from the time the projects are put into operation) into financial expenses:

Debit Account 242 - Long-term prepaid expenses

Credit Account 413 - Exchange rate difference (4132)

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Debit Account 413 - Exchange rate difference (4132)

Credit Account 335 - Payable expenses

2. Accounting and handling relevant matters when converting the book-keeping entry monetary units being Vietnam dong into another book-keeping entry currency and vice versa.

2.1. Principle for currency conversion

- Enterprises may convert the book-keeping entry currency being Vietnam dong into another book-keeping entry currency and vice versa when so approved by the Finance Ministry.

- The conversion of the book-keeping entry currency being Vietnam dong into another book-keeping entry currency and vice versa may be effected only when the new fiscal year begins.

- Depending on the nature of each item on the accounting balance sheet, the conversion of one book-keeping entry currency into another book-keeping entry currency shall be effected according to the following order and principles:

a) Order:

- Closing books, making the accounting balance sheet according to the current book-keeping entry currency;

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- Making addition of the above difference-adjusting entries;

- Making the accounting balance sheet according to the new currency.

b) Principles:

- The cost prices of fixed assets and depreciation of fixed assets shall be converted at the exchange rate on the date of purchasing the assets or the date of handing them over for putting into operation (for fixed assets formulated through construction investment), or evaluation of fixed assets (for fixed assets calculated according to the value of re-evaluation of fixed assets).

- The value of goods in stock shall be converted according to the exchange rate at the time the expenses arise, or the average quarterly exchange rate, or the period-end exchange rate (at the time of conversion).

- The receivable debts or payable debts shall be converted according to the exchange rate on the date when the value of receivable or payable debts is determined (for receivable debts or payable debts in currencies other than the book-keeping entry currency), or the period-end exchange rate (at the time of conversion).

- The contributed capital of owners and reserve funds belonging to the capital of owners, undistributed profits shall be converted according to the period-end exchange rate (at the time of conversion).

- Capital amounts in money (cash, bank deposits) shall be converted according to the period-end exchange rate (at the time of conversion).

 The exchange rate differences (profits or losses) arising when converting the book-keeping entry currency being Vietnam dong into another book-keeping entry currency or vice versa shall not be accounted into the business result reports but must be classified and considered a separate part of the owners’ capital and handled upon the liquidation of enterprises.

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2.2. Accounting and handling of exchange rate differences arising upon the conversion of the book-keeping entry currency being Vietnam dong into another book-keeping entry currency and vice versa:

2.2.1. Accounting the exchange rate differences arising upon the conversion of the book-keeping entry currency being Vietnam dong into another book-keeping entry currency and vice versa:

- Where the exchange rate difference losses arise upon the conversion of the book-keeping entry currency being Vietnam dong into another book-keeping entry currency and vice versa, recording:

Debit Accounts 111, 112, 131, 142, 211, 213,…

Debit Account 413 - Exchange rate difference

Credit Accounts 311, 331, 338, 411, 415, 421,…

- Where exchange rate difference profits arise upon the conversion of the book-keeping entry currency being Vietnam dong into another book-keeping entry currency and vice versa, recording:

Debit Accounts 111, 112, 131, 142, 211, 213,…

Credit Accounts 311, 331, 338, 411, 415, 421,…

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2.2.2. Accountants handle the exchange rate differences arising upon the conversion of the book-keeping entry currency being Vietnam dong into another book-keeping entry currency and vice versa:

- Handle the exchange rate difference losses, recording:

Debit Account 412 - Asset- revaluation difference (4122)

Credit Account 413 - Exchange rate difference (exchange rate losses).

- Handle the exchange rate difference profits, recording:

Debit Account 413 - Exchange rate difference (exchange rate profits)

Credit Account 412 - Asset- revaluation difference (4122)

The Credit balance or Debit balance of Account 412 - Asset-revaluation difference (4122) shall be reflected on the accounting balance sheet and handled upon the liquidation of enterprises (when ending the business duration under the investment licenses or when the enterprises go bankrupt,…)

3. Conversion in financial reports at requests of parent companies

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 Assets, receivable debts, payable debts, capital of owners of money and non-money items shall all be converted at the period-end exchange rate.

 Income and expense items of the business result reports shall be converted at the exchange rate of the transaction date.

 All exchange rate differences arising from the conversion of the currency used for making financial reports into a foreign currency to integrate the financial reports shall be classified as capital of owners till the enterprises are liquidated.

- At the reporting enterprises (affiliate companies), the exchange rate differences arising from the conversion of the financial report-making currency into a foreign currency at the requests of their parent companies must not be reflected into the accounting-book system and the financial reports of the affiliate companies.

4. Accounting of the setting up and return of reserves for stock price decrease, receivable bad debts

4.1. Accounting of stock price decrease reserve

a) Deduction for setting up stock price decrease reserve

The stock price decrease reserve is the reserve for the expected lost value which shall affect the production and business results due to the decrease of prices of supplies, finished products, stock merchandises under the enterprises’ ownership and may happen in the plan year (price drop, poor quality, outmoded,…). Enterprises must have firm evidences on price decrease which may happen in the subsequent fiscal year (on December 31) for use as basis for determining the stock price decrease reserve set up on December 31 and accounted into expenses of the fiscal year.

At the end of the accounting year, upon realizing that the market prices of raw materials, materials, commodities and finished products left in stock are lower than the prices inscribed on the accounting books, the stock price decrease reserve must be set up.

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      The reserve level                    The quantity of                     The                            
       for decrease of               supplies, commodities          accounting          The actual market
    prices of supplies,     =          left in stock at the       x      prices on      -     prices at the time
         commodities                  time of December 31           accounting           of December 31
      for  the plan year                of the reporting year               books

The enterprises shall determine the amount of year-end stock price decrease reserve or reimbursement for inclusion into the cost prices of sold goods; or have to re-enter the cost-price decrease of sold goods of the fiscal year.

b) Accounting of stock price decrease reserves

At the end of the accounting year, the enterprises shall base themselves on the situation of price drop of the actual stock quantities, account and determine the new deduction level for setting up reserve or make addition to the set-up stock price decrease reserves {(if the reserve amount of the current year is larger than the reserve amount of the previous year (>0)}, recording:

Debit Account 632 - Cost prices of sold goods

Credit Account 159 - Stock price decrease reserve

Or, if the reserve amount to be set up in the current year is smaller than the reserve amount of the previous year (0<), the accountants shall re-enter the value difference between the reserve already set up at the end of the previous year and the reserve set up at the end of the current year, recording:

Debit Account 159 - Stock price decrease reserve

Credit Account 632 - Cost prices of sold goods

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a) Deduction for setting up receivable bad debt reserves

The receivable bad debt reserve is the reserve for the expected lost value of receivable bad debts which may not be reclaimed due to the fact that the debtors are incapable of repaying them and may happen in the plan year.

Enterprises shall set up reserves for receivable bad debts which have turned due for one year or more and not yet recovered though the enterprises have many times asked for the repayment thereof, or the debts which have turned due for less than one year but cannot be repaid by debtors as evidenced by signs.

At the end of the fiscal year, enterprises must calculate and determine the new reserve amount, the reserve supplements or re-enter the reserves set up in the previous year as increase or decrease of the cost prices of retail goods in order to determine the business results of the fiscal year.

Bad debts with one of the following evidences may be written off:

* For debtors being legal persons: 

 Court decisions declaring the enterprises’ bankruptcy according to the Law on Enterprise Bankruptcy and the results of property division by courts;

 Decisions of competent bodies on dissolution of enterprises and the results of division of liquidated property by the competent bodies.

* For debtors being individuals:

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 The debtors have fled away;

 The debtors have died.

After handling those debts by crossing them from books, enterprises should continue to monitor those debts on accounts outside the accounting balance sheets.

b) Accounting of receivable bad debts reserves

- At the end of the accounting year, the enterprises shall base themselves on their receivable bad debts, anticipate amounts of loss which may occur in the plan year and the accountants shall determine the new reserve levels or the additional reserves for receivable bad debts (if the reserve set up in the current year is larger than the reserve set up in the preceding year), recording:

Debit Account 642 - Enterprise management expenses

Credit Account 139 - Receivable bad debt reserve

- At the end of the fiscal year, the accountants shall re-enter the receivable bad debt reserves (if the reserves set up in the current year is smaller than the reserve set up in the preceding year) as the decrease of the cost prices of sold goods, recording:

Debit Account 139 - Receivable bad debt reserves

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- When determining that debts are irrecoverable (with decisions to write off debts), making entries by crossing those debts from books, recording:

Debit Account 642 - Enterprise management expenses

Credit Account 131 - Receivable from customers

Credit Account 138 - Other receivable.

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At the same time, continuing to monitor them on Account 004 - Handled bad debts (Account outside the accounting balance sheet) in order to monitor them within prescribed duration so as to be able to retrospectively collect them from customer-debtors, recording:

Debit Account 004 - Handled bad debts

- For receivable bad debts which have already been remitted, if later such handled bad debts are retrospectively collected, the accountants shall base on the actual value of the recovered debt amounts, recording:

Debit Accounts 111, 112

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At the same time, making single entry:

Credit Account 004 - Handled bad debts.

5. Accounting of business capital contribution

5.1. Contribution of legal capital

In principle, the legal capital shall be reflected according to investment licenses and actual tempo of capital contribution. Parties may contribute legal capital in foreign currencies, Vietnamese currency, equipment and machinery, workshops or other constructions, industrial property right value, technical know-how, technological process, technical services, or land use right value, resources, the use value of water surface, sea surface, equipment and machinery, workshops and other constructions, industrial property right value, technical know-how, technological process (according to Articles 7 and 9 of the Law on Foreign Investment in Vietnam). In cases of capital contribution with work-shops, equipment, intangible fixed assets, the independent evaluation thereof is required according to the market prices at the time of capital contribution. The result of each capital contribution drive must be approved by the Managing Board. In the course of their operations, enterprises must not reduce their legal capital.

The currency used for book-keeping entries of actually contributed capital are Vietnam dong or a foreign currency already approved by the Finance Ministry.

The conversion of foreign currencies into Vietnamese currency or vice versa shall be effected at the exchange rates officially announced by Vietnam State Bank at the time of capital contribution and according to the actual tempo of legal capital contribution.

Enterprises must not re-evaluate the legal capital, even in case of exchange rate difference, for recording the legal capital increase or decrease.

When enterprises receive legal capital  actually contributed by the parties as prescribed in the investment licenses, they must base on the exchange rates at the time of capital contribution in Vietnam dong or foreign currencies approved by the Finance Ministry to acknowledge the contributed capital for investment, recording:

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Debit Account 213 - Intangible fixed assets (industrial property right value, technical know-how, technological process, land use right value, resources, use value of water surface, sea surface)

Debit Accounts on Expenses or Account 242 - Long-term prepaid expenses (technical services)

Debit Accounts 111 (1111,1112), 112 (1121, 1122) (Foreign currencies, Vietnamese currency)

Credit Account 411 - Business capital sources (detailed monitoring for capital-contributing parties)

5.2. Contribution of investment capital other than legal capital

Of the total investment capital for execution of investment projects, apart from the legal capital, the capital-contributing parties may borrow long-term or short-term capital to supplement the sources of capital for investment in projects (borrowing from their parent companies, banks or financial institutions). The investment capital other than legal capital, transferred by capital-contributing parties to the contributed capital-receiving companies, must not be recorded into the legal capital but into the borrowed capital or debts owed to the parent companies. Depending on whether the borrowed capital or debts owned to the parent companies are short-term loans of under one year or over one year, they shall be properly reflected on Account 336- Internally payable (borrowing or short-term debts from the parent companies); Account 341- Long-term loans (long-term loans or debts from the parent companies).

Based on the exchange rates applicable to other contributed investment capitals (according to the average inter-bank exchange rate announced by Vietnam State Bank at the time the economic operation arises, or the actual exchange rates of the arising economic operations) according to Vietnam dong, or a foreign currency approved by the Finance Ministry at the time of capital contribution, recording:

Debit Accounts 111, 112, 152, 211,…

Credit Accounts 336, 341

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Debit Account 635 - Financial expenses

Credit Accounts 111, 112, 335, 338.

5.3. Restructuring investment capital, legal capital:

In the course of their operation, enterprises may restructure their investment capital and/or legal capital when there are changes in the objectives or scales of projects, partners, capital-contributing modes and other cases under decisions of the Managing Boards and with the approval of the investment-licensing agencies.

Upon restructuring the legal capital and/or changing the capital-contributing percentages of the parties, which leads to the increase or decrease of the legal capital, under decisions of the Managing Boards and with the approval of the investment-licensing agencies:

- In cases of entering the increase of legal capital, based on the actually contributed capital amounts (at the exchange rate into Vietnam dong, or into foreign currencies approved by the Finance Ministry at the time of capital contribution), recording:

Debit Account 111, 112,…

Credit Account 411 - Business capital sources

- In case of entering the decrease of legal capital, based on the legal capital amounts reduced by the capital-contributing parties (with the agreement of the Managing Boards and the approval of the investment-licensing agencies), recording:

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Credit Accounts 111, 112, 211, 213,…

6. Accounting of establishment expenses, the land use right, construction investment expenses, pre-operation expenses, test-run expenses, trial production expenses

6.1. Accounting of establishment expenses

The expenses for establishment of enterprises are actual expenses related directly to the preparation for the emergence of the enterprises and considered by the founding members as part of the contributed capital of each party and recorded in the charter capital of the enterprises, including expenses for research, exploration, elaboration of investment projects on setting up the enterprises, project evaluation expenses, founding meetings… These expenses shall be calculated to the time the enterprises get the investment licenses and considered long-term prepaid expenses. The establishment-related expenses must be evidenced with lawful and valid vouchers. The time for distribution of establishment expenses shall be 5 years at most. Enterprises should restrict the division of profits equivalent to the value of establishment expenses not yet distributed.

- When the expenses for establishment of enterprises are considered by the founding parties part of the contributed capital of each party and recorded in the charter capital of the enterprises, recording:

Debit Account 242 - Long-term prepaid expenses (detailed establishment expenses)

Credit Account 411 - Business capital sources.

6.2. Accounting of the land use right

When the Vietnamese parties contribute capital with the land use right considered intangible assets and recorded as follows:

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Credit Account 411 - Business capital sources

6.3. Accounting of construction investment expenses

6.3.1. Principles for accounting of construction investment expenses:

When enterprises implement investment projects on new constructions or expansion, upgrading of workshops, architectural objects; procurement and installation of machinery and equipment, they shall have to account fully, timely and separately the investment expenses on Account 241- Unfinished capital construction.

The expenses directly related to the process of capital construction include: Expenses for raw materials and materials, labor, expenses for use of machinery, general expenses (expenses for administrative management, wages, depreciation of fixed assets used directly for the operation of the investment project-managing boards,…) for the work of construction or the installation of machinery and equipment according to the approved technical blueprints.

The capital construction shall be carried out by mode of contractual assignment or self-help.

Upon the completion of the investment process, enterprises shall have to settle the projects and determine the value of assets formulated after the investment. The assets formulated after the investment shall include tangible fixed assets, intangible fixed assets, circulating assets and expenses calculated into business result reports.

 The investment expenses calculated into the value of tangible assets being houses, architectural objects, include: Construction expenses (according to construction contracts, or direct expenses for the performance of the construction volume), expenses for designs, elaboration of project estimates, expenses for construction ground, expenses distributed by the investment project-managing boards.

 The investment expenses calculated into the value of tangible assets being machinery and equipment include the value of machinery and equipment (purchase prices, freight, import tax, if any, customs fees,…), expenses for installation, test-run (if any), expenses distributed by the investment project-managing boards.

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 The investment expenses calculated into the value of circulating assets include: the value of raw materials and materials, instruments, tools (failing to reach the standards for being fixed assets) accompanying equipment in complete set (if any).

 Other investment expenses calculated promptly or distributed gradually into business result report include: Expenses for training of workers, personnel, managerial officials in the project investment period; expenses for production and business preparation in service of operation of the projects when the investment period ends and the production and business operations commence.

 The exchange rate differences arising in the course of investment and the differences arising from the re-evaluation of money items of foreign currency origins in the investment period shall not be calculated into the value of tangible and intangible assets, circulating assets but accounted separately and handled according to Point 1.2- Accounting of exchange rate differences and handling of exchange rate differences of Section III, Part II of this Circular.

Enterprises should restrict the division of profits equivalent to the value of undistributed investment expenses awaiting the carry-over.

Other expenses arising in the course of capital construction investment, not directly related to the formation of fixed assets, must be reflected into the business result reports.

6.3.2. Accounting of expenses for implementation of construction investment:

- When expenses directly related to the process of capital construction for formation of fixed assets by mode of self-help or contractual assignment arise, they shall be recorded:

Debit Account 241 - Unfinished capital construction

Credit relevant Accounts

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Debit Account 211 - Tangible fixed assets (workshops, architectural objects, machinery and equipment)

Debit Account 213 - Intangible fixed assets (land use right: Expenses related to construction land,…)

Debit Account 242 - Long-term prepaid expenses (investment expenses gradually distributed)

Debit Accounts 152, 153,…

Credit Account 241 - Unfinished capital construction

* Caution: In the process of construction investment, the arising expenses not directly related to the formation of fixed assets shall not be included into the investment expenses for project implementation but reflected into the enterprise management expenses and carried over into the business result report of the fiscal year, recording:

- When expenses not related to construction investment activities arise, recording:

Debit Account 642 - Enterprise management expenses

Credit relevant Accounts

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Debit Account 911 - Determining the business results

Credit Account 642 - Enterprise management expenses

6.4. Accounting of pre-operation expenses:

a) The pre-operation expenses include the actually arising expenses related to the work of training (training of workers, technicians, managerial officials,…) and production preparation (work of preparing apparatuses,…). These expenses often arise in the period of preparation for production and business, putting the completed investment assets to use. If these expenses are related to many business periods and large, the enterprises may distribute them into the subsequent years for a maximum duration of 3 years. Enterprises should restrict the division of profits equivalent to the value of undistributed pre-operation expenses.

b) Accounting of pre-operation expenses

- When pre-operation expenses not related to many periods actually arise, recording:

Debit Account 642 - Enterprise management expenses

Credit relevant Accounts

- Then carrying over the pre-operation expenses into business result reports in the period, recording:

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Credit Account 642 - Enterprise management expenses

- When pre-operation expenses related to the work of training and preparation for production activities arise, enterprises may reflect them into Account 242- Long-term prepaid expenses and distributed into subsequent accounting period:

 When pre-operation expenses arise, recording:

Debit Account 242 - Long-term prepaid expenses

Credit relevant Accounts.

 When these pre-operation expenses are distributed into subsequent business periods, recording:

Debit Account 642 - Enterprise management expenses

Credit Account 242 - Long-term prepaid expenses.

6.5. Accounting of expenses for and turnover of test-run, trial production

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If in the period of construction investment of enterprises there are (charge or non-charge) test-runs of the entire production chain, or trial production before officially starting production and business as prescribed in the economic and technical blueprints of the investment projects (excluding test-run of single machines, which shall be conducted by the installers), the expenses for test-runs, trial production shall be accounted as follows:

Where the expenses arising in the period of test-run or trial production are not large, the expenses for test-run or trial production and the proceeds from the sales in this period shall be accounted right into the business result report of the fiscal year. These expenses for test-run, trial production shall be gathered into relevant expense accounts and included into the cost prices of sold goods of the fiscal year. The amounts earned from service provision or product sale shall be recognized as turnover of the fiscal year. This turnover (if any) must also comply with the provisions of the current Laws on VAT and Enterprise Income Tax.

Where the expenses arising in the period of test runs or trial production are large while the proceeds from the sale of products turned out through test-runs or trial production are minimal, such expenses, after being offset by the proceeds, shall be accounted into Account 242- Long-term prepaid expenses of the accounting balance sheet and calculated into the business result report of the subsequent fiscal year for a maximum duration of 3 years. The amounts earned in the period of test run must also be subject to the VAT Law.

The turnover in the period of trial production must comply with the provisions of the VAT Law and shall be deducted from the expenses in the period of trial production.

6.5.2. Accounting of expenses for, turnover of test runs, trial production

a) Accounting of expenses for test runs, trial production:

a1) Accounting of expenses for test runs, trial production

- When expenses arise in the period of test run, trial production, the accountants shall record:

Debit Account 621, 622, 627

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- When carrying over expenses to gather test-run, trial-production expenses arising in the period, recording:

Debit Account 154 - Unfinished production, business expenses

Credit Accounts 621, 622, 627

- Warehousing finished products (if any), recording:

Debit Account 155 - Finished products

Credit Account 154 - Unfinished production, business expenses

a2) Where the test-run, trial production expenses are recorded into business result reports

 When delivering finished products of the trial production for sale, trade promotion, or carrying over test-run, trial-production expenses into the business result reports in the period, recording:

Debit Account 632 - Cost prices of sold goods

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a3) In case of recording the actually arising test-run or trial-production expenses after being offset by amounts collected in this period into Account 242- Long-term prepaid expenses of the accounting balance sheet and calculated into business result report for a maximum duration of 3 years:

 At the period-end, recording the expenses actually arising in the period of test run, trial production into Account 242- Long-term prepaid expenses of the accounting balance sheet, recording:

Account 242 - Long-term prepaid expenses

Credit Account 154 - Unfinished production and business expenses

Or, warehousing finished products of the trial production (if any), recording:

Debit Account 155 - Finished products

Credit Account 154 - Unfinished production and business expenses

 When enterprises sell products of the trial production, the accountants shall carry over the cost value of finished products of the trial production, which are sold, into the business result reports in the period, recording:

Debit Account 632 - Cost prices of sold goods

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 When distributing expenses in the period of test run, trial production into the business expenses in the period in compatibility with the turnover of the sale of products of the trial production, or distributing them within the maximum time limit of 3 years, recording:

Debit Account 632 - Cost prices of sold goods

Credit Account 242 - Long-term prepaid expenses

b) Accounting of turnover of the sale of trial-production products (if any):

In the process of test run, trial production, the turnover from sale of trial-production products may arise:

b1) Where enterprises account turnover of the sale of the trial-production products into business result reports in the period:

When selling products turned out from trial production, recording the turnover:

Debit Accounts 111, 112, 131,…

Credit Account 511 - Turnover of goods sale and service provision

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b2) Where enterprises offset the turnover of the sale of products of trial production with the test-run, trial-production expenses reflected on Account 242- Long-term prepaid expenses of the accounting balance sheet, recording:

Debit Account 511 - Turnover of goods sale and service provision

Credit Account 242 - Long-term prepaid expenses.

c) Determining the business results with the sale of products of trial production:

- Carrying over net turnover, recording:

Debit Account 511 - Turnover of goods sale and service provision

Credit Account 911 - Determining business results

- Carrying over the cost prices of products of trial production, recording:

Debit Account 911 - Determining business results

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- Determining profits, losses of trial-production activities, recording:

 In case of profits, recording:

Debit Account 911 - Determining business results

Credit Account 421 - Undistributed profits.

- In case of losses, recording:

Debit Account 421 - Undistributed profits

Credit Account 911 - Determining business results.

7. Recording legal capital, re-evaluating assets, preserving legal capital contributed in foreign currencies

7.1. Recording legal capital, re-evaluating assets

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- When actually receiving the contributed legal capital in foreign currencies, machinery and equipment, workshops, other constructions, industrial property right value, technical know-how, technical process, technical services with value in foreign currencies converted into the currency used for book-keeping entries, recording:

Debit Accounts 111 (1111), 112 (1122), 211, 213,…

Credit Account 411 - Business capital sources

7.2. Preserving legal capital:

Enterprises shall preserve legal capital according to the value of contributed legal capital acknowledged in the investment licenses in foreign currencies from the after-enterprise income tax profits by way of setting up the financial reserves from the after-tax profits, to be decided by the enterprises, recording:

Debit Account 421 - Undistributed income

Credit Account 415 - Financial reserve fund.

8. Accounting of cases of division, separation, consolidation, merger, investment transformation (referred collectively to as reorganization of enterprises)

8.1. Accounting of activities of division, separation, merger, consolidation of enterprises

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Foreign-invested enterprises; parties to business cooperation contracts shall, in the process of operation, be allowed to change form of investment, carry out division, separation, merger or consolidation of enterprises (Article 19a - Foreign Investment Law)

Activities of consolidation, merger, division, separation of enterprises, change of investment form (referred collectively to as reorganization of enterprises) must be approved by the licensing agencies. The new enterprises shall inherit the rights and obligations of the former enterprises (Articles 31, 32 of Decree No. 24/2000/ND-CP of July 31, 2000 of the Government)

Consolidation of enterprises:

Enterprises of the same type may be consolidated with one another into a new enterprise under decisions of the investors and with the approval by the licensing agencies. The consolidation of enterprises must comply with the law-prescribed procedures for establishment and registration of enterprises. After the consolidation, the former enterprises shall terminate all civil rights and obligations, which are transferred to the new enterprises.

Merger of enterprises:

An enterprise can be merged (called the merged enterprise) into another enterprise of the same type (called the merging enterprise) under decisions of the investors and with the approval of the licensing agencies. After the merger, the merged enterprises shall terminate all their civil rights and obligations and transfer them to the merging enterprises.

Division or separation of enterprises:

- An enterprise can be divided or separated into many enterprises under decision of the investors and with the approval of the licensing agency.

 After the division, the divided enterprise shall terminate all its civil rights and obligations and transfer them to the new enterprises under decision on division of the enterprise in conformity with the operating purposes of the enterprise.

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8.1.2. Principles for and methods of book-keeping accounting in cases of consolidation, merger and division of enterprises:

a) Principles for accounting upon the consolidation, merger or division of enterprises:

- For consolidated or merged enterprises, they must record in the accounting books the decrease of the entire assets, debts and capital sources for transfer thereof to the new enterprises.

- For enterprises newly formulated from the consolidation or merging enterprises:

 Including in their business result reports also the results of business operation of the consolidated or merged enterprises.

 Recording in their accounting books the entire assets, debts and capital sources of the merged enterprises, including goodwill and negative goodwill arising from the merger.

b) Accounting of activities of consolidating, merging or dividing enterprises:

- At the consolidated, merged or divided enterprises, based on the reports on transfer of assets, debts and capital sources of the owners to the new enterprises, recording:

Debit Account 411, 331, 311, 333, 338, 334, 335, 214,…

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- At the new enterprises, based on the reports on transfer of assets, receivable debts, payable debts, capital sources of owners from the former enterprises, recording:

Debit Accounts 111, 112, 131, 141, 151, 152, 153, 154, 155, 156, 211, 213,…

Debit Account 242 - Long-term pre-paid expenses

(Expenses for goodwill)

Credit Accounts 411, 331, 311, 333, 338, 334, 335,…

Credit Account 3387 - Negative goodwill turnover.

8.1.3. Accounting in cases of separation of enterprises:

The separated enterprises shall record the decrease for the assets, debts and capital sources to be transferred to the new enterprises. The new enterprises shall record the increase of assets, debts and capital sources under the decisions on separation of enterprises in conformity with the divided rights and obligations.

- The separated enterprises shall, based on the reports on transfer of assets, debts and capital sources of owners to the new enterprises, record:

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Debit Accounts 331, 311, 341, or

Debit Account 214 - Tear and wear of fixed assets

Credit Accounts 111, 112, 131, or

Credit Accounts 211, 213

- The new enterprises shall, based on the reports on transfer of assets, debts and capital sources of owners from the separated enterprises, record:

Debit Accounts 111, 112, 131

Debit Accounts 211, 213

Credit Account 411 - Business capital sources, or

Credit Accounts 331, 311, 341

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8.2.1. Activities of transferring contributed capital:

The parties to joint-venture enterprises or the investors in enterprises with 100% foreign capital may transfer the values of their contributed capital portions in the enterprises. Where the capital transfer generates profits, the transferors shall have to pay enterprise income tax (Article 34, the Foreign Investment Law).

8.2.2. Accounting principles:

a) Where the capital portions are transferred among investors being co-capital contributors in the enterprises, the expenses related to the transfer activities of the parties shall not be accounted on the enterprises’ books but only the procedures shall be carried out for the change of owners’ names in the business licenses.

b) Where a party (the Vietnamese or foreign party) repurchases the capital portion of the other party to a joint venture in order to become the sole owner of the enterprise, the purchase of contributed capital portion should be accounted according to charge rates, namely the equivalent cash amounts and the purchaser may record the expenses for the purchase of this capital portion (which may be higher or lower than the book values of the transferred capital portion) on the day of transfer.

- Where the purchase expense is higher than the book value, the difference shall be accounted as a goodwill and recognized as the intangible asset and distributed according to the estimated useful duration of use and the straight-line method.

- Where the purchase expense is smaller than the portion owned by the enterprise in the equivalent value of purchased assets and debts determined on the day of exchange, the equivalent value of these non-money assets should be recorded as corresponding decrease till the difference no longer exists. Where the difference cannot be fully eliminated by way of recording the decrease of the equivalent value of non-money assets, the remaining difference should be reflected as a negative goodwill and accounted as the retained income. This difference portion should be recognized as income within a duration of no more than 5 years, except where for plausible reasons it shall be distributed within a longer duration which, however, must not exceed 20 years as from the date of buying the enterprise.

8.2.3. Methods of accounting the transfer of contributed capital:

a) The accounting of transactions related to activities of transferring contributed capital in cases where a party (the Vietnamese or foreign party) re-purchases the contributed capital of the other party in order to become the sole owner of the enterprise shall be the same as the accounting in cases of consolidation, merger or division of enterprises in Item 8.1.2- b.

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- When returning the contributed capital with the land use right of the Vietnamese party, recording:

Debit Account 411 - Business capital sources

Credit Account 213 - Intangible fixed assets (2131- Land use right)

- When the enterprise receives money from the foreign party as the land rent payment (as the foreign party re-purchases the Vietnamese party’s capital portion contributed with the land use right and shift to the form of land lease), and concurrently records the increase of the actually contributed legal capital of the foreign party corresponding to the value of the re-purchased contributed capital portion of the transferor, or records the increase of borrowed amounts, long-term debts if the borrowed amounts or foreign debts transferred into Vietnam for payment of the land rent, recording:

Debit Accounts 11, 112, 242

Credit Accounts 411, 341, 342.

9. Accounting of investment in construction, procurement of fixed assets in activities of business cooperation and performance of business cooperation contracts

9.1. Organizing the accounting of activities of performing the business cooperation contracts

Business cooperation contracts are documents signed between two or more parties for investment and business in Vietnam, which define the responsibility and divided business results of each party without setting up new legal persons.

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Form 1: The parties to the business cooperation contracts may agree to let a party (the foreign party or the Vietnamese party) take the responsibility for the performance of the entire accounting work for the business cooperation contracts.

The accounting section for the business cooperation contracts must be organized separately from the accounting section of the party which undertakes to perform the accounting work, and all activities of the business cooperation contracts shall be carried out in the legal name of the party undertaking to perform the accounting work. The contents of the accounting work shall include the accounting of turnover, expenses, the determination of pre-tax business results.

At the end of each fiscal year or upon the termination of the business cooperation contracts, the party which performs the accounting work must settle the performance of the business cooperation contracts in terms of turnover, expenses and business results for use as basis for division of pre-enterprise income tax business profits (profits or losses). Based on the divided pre-tax profits, the foreign parties shall perform their tax and other financial obligations according to the Foreign Investment Law while the Vietnamese parties shall perform their tax and other financial obligations according to the law provisions applicable to domestic enterprises.

Form 2: In the business process, if deeming it necessary, the business cooperation parties may agree to set up the coordinating board for the performance of business cooperation contracts.

The coordinating board may organize the accounting section which shall be responsible for the performance of the entire accounting work of the business cooperation contract. The accounting work in this case shall be implemented like that of an enterprise, covering the contents of accounting the assets, capital sources, turnover, expenses, determination of business results and division of pre-tax profits.

At the end of each fiscal year or upon the termination of business cooperation contracts, the accounting section shall account and distribute pre- enterprise income tax profits to the parties according to capital contribution percentages and the agreement among the parties. Based on the divided pre-tax profits, the foreign parties shall perform their tax and other financial obligations according to the Foreign Investment Law while the Vietnamese parties shall perform their tax and other financial obligations according to the law provisions applicable to domestic enterprises.

Form 3: Each party may organize its own accounting section to monitor its own interests and obligations in the business cooperation contracts.

At the end of each fiscal year or upon the termination of the business cooperation contracts, the accounting section of each party shall account and perform tax obligations towards the State within the scope of its responsibility. The foreign parties to the business cooperation contracts shall perform their tax and other financial obligations according to the Foreign Investment Law while the Vietnamese parties perform their tax and other financial obligations according to the law provisions applicable to domestic enterprises.

9.2. Accounting of investment in construction, procurement of fixed assets in business cooperation activities

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- When the expenses for investment in construction of workshops, procurement of machinery and equipment, or repair of workshops arise, recording:

Debit Account 211 - Tangible assets (workshops, machinery and equipment)

Debit Account 242 - Long-term prepaid expenses (repair of workshops)

Debit Account 133 - Deducted VAT (if any)

Credit Accounts 111, 112, 331,…

- The fixed asset depreciation shall be accounted into expenses for contractual business cooperation activities, recording:

Debit Account 627 - General production expense

Credit Account 214 - Tear and wear of fixed assets

Concurrently recording Debit Account 009- Capital sources for basic depreciation.

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 Proceeds from liquidation, sale of fixed assets, recording:

Debit Accounts 111, 112, 138

Credit Account 711 - Other incomes

Credit Account 333 - Taxes and amounts payable to the State (33311)

 The remaining value of fixed assets and actually arising liquidation or sale expenses, recording:

Debit Account 811 - Other expenses

Credit Account 211 - Tangible fixed assets (the remaining values)

Credit Accounts 111,112, 331,…( arising liquidation expenses)

10. Accounting of the operation of assigning and accepting the product processing in the contractual business cooperation activities

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Debit Account 331 - Payable to sellers

Credit Account 152 - Raw materials, materials

- Upon receiving back the processed products, recording:

Debit Account 621 - Direct raw materials, materials expenses

Credit Account 331 - Payable to sellers.

- Accounting of expenses for depreciation of fixed assets (equipment, workshops) built on other people’s land for the performance of business cooperation contracts (if any), recording:

Debit Account 627 - General production expenses (6274)

Credit Account 214 - Tear and wear of fixed assets (2141)

- Accounting of other expenses related to processing activities, recording:

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Credit Accounts 111, 112

- General accounting of production expenses and calculating the costs of processed products shall be effected as for other products of the enterprises under the enterprises’ accounting regime.

11. Accounting of turnover of golf course business, infrastructure dealing, assets leasing for many years (operation leasing), entrusted import

11.1. Accounting of business in golf course, real estate leasing, asset leasing:

Where golf course dealing, real estate leasing and/or asset leasing activities generate turnover collected in advance for many years, the turnover must be memorized according to fiscal years:

a) For unimplemented turnover:

a1) Unimplemented turnover accounted in Account 3387- Unimplemented turnover

- Upon receipt of money paid in advance for many periods by customers, the accountants record:

Debit Accounts 111, 112

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Credit Account 3331 - Payable VAT (33311)

At the same time determine the turnover of the accounting period, recording:

Debit Account 3387 - Unimplemented turnover

Credit Account 511 - Turnover of goods sale and service provision (5113)

- Upon paying VAT on the actually collected amounts of multi-year turnover (with input VAT of the accounting period deducted), recording:

Debit Account 3331 - Payable VAT- (33311)

Credit Accounts 111, 112.

- Upon determining the enterprise income tax payable in the fiscal year, recording:

Debit Account 421 - Undistributed profits (Income liable to enterprise income tax)

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a2) When actually paying the enterprise income tax (for each period, or the rest), recording:

Debit Account 333 - Taxes and amounts payable to the State (3334)

Credit Accounts 111, 112

a3) Into the subsequent fiscal year, determining the current year’s turnover of lump-sum cash collection (in the preceding fiscal year) in compatibility with the accounting period (month, quarter), recording:

Debit Account 3387 - Unimplemented turnover

Credit Account 511 - Turnover of goods sale and service provision (5113)

- Carrying over turnover to determine business results in the period, recording:

Debit Account 511 - Turnover of goods sale and service provision (5113)

Credit Account 911 - Determining business results

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Only accounting in business expenses in the period the actually arising expenses:

- Upon depreciation of tangible and intangible fixed assets into expenses, recording:

Debit Account 627 - General production expenses (6274)

Credit Account 214 - Tear and wear of fixed assets (2141, 2143)

- When expenses directly related to the process of business operation arise, recording

Debit Accounts 621, 622, 627

Debit Account 133- Deducted VAT

Credit Accounts 152, 331, 334, 338, 111, 112,…

- At the end of the accounting period, carrying over the expenses directly related to the activities of enterprises, which are gathered on Accounts 621, 622, 627, recording:

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Credit Accounts 621, 622, 627

- Determining the cost values of services completely provided in the period, recording:

Debit Account 632 - Cost prices of sold goods

Credit Account 154 - Unfinished production and business expenses

- Carrying over the cost values of services completely provided in the period in order to determine the business results in the period, recording:

Debit Account 911 - Determining business results

Credit Account 632 - Cost price of sold goods.

- Goods sale expenses and enterprise management expenses shall be accounted into Accounts 641, 642. At the period-end, they shall be forwarded into Account 911 in order to determine the business results in the period.

c) Long-term, short-term deposits of customers shall be credited to Accounts 344, 338 (3388)

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Debit Accounts 111, 112

Credit Account 344 - Receipt of long-term security, deposit (long-term deposit)

Credit Account 338 - Other payable, remittable (3388) (short-term deposit)

- When refunding deposits to customers, the accountants record:

Debit Accounts 344, 338 (3388)

Credit Accounts 111, 112

- Fines for contractual breaches shall be subtracted from deposits, recording:

Debit Accounts 344, 338 (3388)

Credit Account 711 - Other income

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- Activities of dealing in infrastructure mean activities of transferring land or subleasing land with infrastructure already developed thereon and providing electricity, water (if any) supply, public-utility,… services in industrial parks, export-processing zones and hi-tech parks,…

- Foreign-invested enterprises and business cooperation parties, which lease or sublease land in industrial parks, export-processing zones, hi-tech parks (receiving transferred land), shall be granted the land use certificates under the guidance of the General Land Administration.

-  Infrastructure business turnover includes: Turnover of transfer or sublease of land with developed infrastructure and turnover of infrastructure service provision (public-utility and preservation and maintenance charges).

- The principle for recording turnover of transfer or sublease of land with developed infrastructure is the lump- sum payment by method of “ land plot”, namely the turnover shall be recorded when land is transferred to the lessees on the field and the rent is paid in lump sum.

- The principle for recording service provision turnover (public utility and preservation and maintenance charges) according to the provisions in Paragraph 16 of Standards for turnover and other income- Standard No.14.

- Enterprises dealing in infrastructure must fulfill their tax obligations related to turnover of leasing or subleasing land with developed infrastructure and service provision turnover according to current regulations.

- The expenses related to infrastructure “land plots” already transferred to the users (the lessees) and the lump-sum rent collection shall be recorded according to the principle that expenses must conform to turnover.

11.2.1. Accounting of the receipt of contributed capital for infrastructure business:

- Upon the receipt of capital contributed in the land use right from the time of handing over the land on the field for infrastructure business, recording:

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Credit Account 411 - Business capital sources

- Upon receipt of capital in cash, machinery, equipment, other fixed assets,…, recording:

Debit Accounts 111, 112, 211

Credit Account 411 - Business capital sources.

11.2.2. Accounting of the process of investment in the construction of infrastructure;

- When the land-related expenses, such as compensation expenses, ground clearance expenses, ground leveling, fill-up expenses,… arise, recording:

Debit Account 241 - Unfinished capital construction

Debit Account 133 - Deducted VAT (if any)

Credit Accounts 111, 112, 152, 153, 331,…

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Debit Account 211 - Tangible fixed assets (buildings, architectural objects- fixed assets in general service of infrastructure business activities- If any).

Debit Account 242 - Long-term prepaid expenses (if any)

Debit Account 228 - Other long-term investment (buildings, architectural objects, infrastructure projects on land, land already invested with infrastructure for the purpose of leasing land already with developed infrastructure)

Credit Account 241 - Unfinished capital construction.

11.2.3. Accounting of actually arising expenses for investment activities of developing infrastructure land and expenses for service provision (water, electricity (if any), public-utility and preservation and maintenance):

11.2.3.1. Accounting of the cost value of land with infrastructure already developed for lease:

When leasing infrastructure, transferring the leased land areas to the infrastructure lessees:

- Determining the cost value of the “land plot” with infrastructure already developed for lease (the land use right, land-related expenses for formation of land with developed infrastructure, fixed assets, architectural objects closely associated to the leased land- if any), recording:

Debit Account 635 - Financial expenses

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11.2.3.2. Accounting of expenses for electricity, water (if any) supply, public utility, infrastructure preservation and maintenance services provided to the infrastructure lessees:

- When the direct expenses for the provision of water, electricity (if any) supply, public- utility, infrastructure preservation and maintenance,… services arise, recording:

Debit Accounts 621, 622, 627

Credit Accounts 152, 153, 331, 334, 338, 111, 112,…

- Carrying over expenses directly related to services in order to rally business expenses and calculate the charges for electricity, water (if any) supply, public-utility and infrastructure preservation and maintenance services, recording:

Debit Account 154 - Unfinished production, business expenses (detailed according to services)

Credit Accounts 621, 622, 627

- Determining the cost prices of infrastructure services provided to customers, recording:

Debit Account 632 - Cost prices of sold goods

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11.2.3.3. Accounting of goods sale expenses, enterprise management expenses:

- When the goods sale (advertisement, sale promotion,…) expenses and enterprise management expenses arise, recording:

Debit Account 641 - Goods sale expenses

Debit Account 642 - Enterprise management expenses

Credit Accounts 152, 153, 331, 334, 338, 214, 111, 112,…

11.2.3.4. Determining and carrying over the cost value of the leased infrastructure “land plots”, the cost prices of infrastructure services, goods sale expenses, enterprise management expenses so as to determine the business results:

- Determining the cost value of infrastructure land leased in the period, recording:

Debit Account 635 - Financial expenses

Credit Account 228 - Other long-term investment

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Debit Account 632 - Cost prices of sold goods

Credit Account 154 - Unfinished production, business expenses

- Carrying over the cost value of transferred or subleased infrastructure land and expenses for infrastructure services provided in the period in order to determine the business results in the accounting period, recording:

Debit Account 911 - Determining business results

Credit Account 632 - Cost prices of sold goods

Credit Account 635 - Financial expenses

- Carrying over goods sale expenses and enterprise management expenses in order to determine the business results, recording:

Debit Account 911 - Determining business results

Credit Accounts 641, 642

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- Turnover of leased or subleased land with developed infrastructure shall be calculated on the leased land areas (“land plots”) and the land-leasing duration:

 The turnover of transfer or sublease of land with infrastructure already developed (“land plots”), with lump-sum rent collection, recording:

Debit Accounts 111, 112

Credit Account 515 - Financial operation turnover

Credit Account 333 - Taxes and amounts remittable to the Budget {3331- Payable VAT (33311)} (not calculated on land rent)

- Turnover of transfer or sublease of land with developed infrastructure (“land plots”), which are returned (if any), recording:

Debit Account 333 - Taxes and amounts remittable to the Budget (33311)

Debit Account 531 - Sold goods which are returned

Credit Accounts 111, 112, 138, 338 (3388)

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Debit Account 515 - Financial operation turnover

Debit Account 3331 - Payable VAT (33311) ( if any)

Credit Account 531 - Sold goods returned

- Infrastructure service provision turnover, recording:

Debit Accounts 111, 112, 131

Credit Account 511 - Goods sale and service provision turnover (5113)

Credit Account 3331 - Payable VAT ( 33311)

- Collected fines for contractual breaches, recording:

Debit Accounts 111, 112, 138

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- Carrying over net turnover, other incomes to determine the business results, recording:

Debit Accounts 511, 711

Credit Account 911 - Determining business results

- Determining infrastructure business results (land lease, service provision):

 Business profits, recording:

Debit Account 911 - Determining business results

Credit Account 421 - Undistributed profits

 Business losses, recording:

Debit Account 421 - Undistributed profits

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11.3. Accounting of entrusted import activities

11.3.1. Units which carry out import activities through import-entrusting contracts- Called the import-entrusted party (called B1 for short) shall account the contents: The receipt of the value of equipment under the original entrusted import contracts; expenses related to equipment, import goods (expenses for renting warehouses and/or storing yards, expenses for transportation of imported goods, customs fees, import tax, VAT on import goods,…); the receipt of supplementary equipment, goods under the entrusting contracts due to changes in equipment structure or changes in design of equipment installation in the signed contracts,…{The value of these supplementary equipment and all accompanied expenses (for rent of warehouses and/or storing yards, expenses for transportation of entrusted-import goods, customs fees, import tax, VAT on import goods,…)} shall be fully borne by the equipment and/or goods sellers; the receipt of money amounts of the entrusting parties for payment on the latter’s behalf: The money for purchase of import goods, including freight, imported goods insurance, import tax, VAT(if any) on imported goods, customs fees,...; the transfer of entrusted-import equipment and goods, including supplementary imported equipment and goods, to the entrusting parties and collect commissions for the entrusted import, as follows:

a) When importing the entrusted-import equipment, goods

a1) Accounting of the value of equipment, goods according to the import-entrusting contracts; expenses related to imported goods and equipment (expenses for renting warehouses, storing yards, expenses for domestic transportation of entrusted-import goods, import tax, VAT on import goods, customs fees,…)

- Accounting of the value of entrusted-import goods and/or equipment (according to FOB or CIF prices) and import tax, VAT on import goods, based on relevant vouchers to record:

Debit Account 151 - Purchased goods en route

Debit Account 156 - Goods (1561) (values of equipment, goods and assorted taxes: import tax, special consumption tax, VAT on import goods)

Credit Account 331- Payable to sellers (equipment value according to FOB or CIF price)

Credit Account 333 - Taxes and amounts payable to the State

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33312 - Payable VAT on import goods)

a2) Accounting of expenses related to imported goods (expenses for renting warehouses and/or storing yards, customs fees, expenses for domestic transportation of entrusted-import goods,…):

Debit Account 156 - Goods (1562)

Credit Account 331 - Payable to sellers (domestic sellers) (expenses for renting warehouses and/or storing yards, expenses for domestic transportation of entrusted-import goods,…)

Credit Account 333- Taxes and amounts payable to the State (3339) (Customs fees)

a3) Accounting of the receipt of supplementary equipment under the entrusting contract, of which the value and all accompanied expenses (expenses for renting warehouses and/or storing yard, import tax, VAT on imported goods, customs fees, expenses for domestic transportation of entrusted-import goods with regard to the supplementary equipment,…) shall be fully borne by the equipment sellers, recording:

Debit Account 156 - Goods (1561, 1562) (equipment value, import tax and VAT on import goods and accompied expenses)

Credit Account 131 - Receivable from customers (the entrusting party) (the equipment value according CIF prices notified by sellers)

Credit Account 131 - Payable to sellers (domestic sellers) (expenses for renting warehouses and/or storing yards, expenses for domestic transportation of entrusted-import goods,…)

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(3333 - Import tax; 3332 - Special consumption tax;

33312 - VAT payable on imported goods;

3339 - Customs fees)

b) When the import-entrusted parties receive money from the entrusting parties as payment on the latter’s behalf, such as money for purchase of entrusted-import equipment, including freight, insurance premium for imported goods, customs fees, other expenses related to entrusted-import goods; commission for entrusted import, import tax, VAT on import goods, recording:

Debit Accounts 111, 112

Credit Account 131 - Receivable from customers

c) When settling amounts related to entrusted-import goods lots in cash or bank deposits or the import-entrusted parties are asked to pay import  tax on the entrusting parties’ behalf as agreed upon, recording:

Debit Accounts 331, 333 (3332, 3333, 33312), 156 (1562)

Credit Accounts 111, 112, 238

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d1) Returning the entrusted-import goods to the import-entrusting party (including goods imported in the first time, or goods imported additionally):

- When returning the entrusted-import goods to the import-entrusting party, based on delivery bills and sale invoices returned to the import-entrusting party, recording:

Debit Account 131 - Receivable from customers (import-entrusting units)

Credit Account 156 - Goods (1561, 1562)

Credit Account 151 - Purchased goods en route

d2) Recording the goods sale turnover (entrusting commission) and payable VAT (calculated on entrusted-import commission enjoyed for the first-time entrusted importation and the additional importation- if any):

Debit Account 131 - Receivable from customers (entrusting units) (if subtracting from amounts already received from the entrusting party)

Credit Account 511 - Goods sale and service provision turnover (entrusted import commission)

Credit Account 333 - Taxes and amounts payable to the State (3331- Payable VAT calculated on enjoyable commission for entrusted import).

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a) Accounting the values of equipment and/or goods and expenses related to entrusted-import equipment and/or goods (import tax, VAT on import goods, customs fees, expenses for renting warehouses and/or storing yards, expenses for transportation of entrusted-import goods,…); delivered equipment for use:

- When transferring money for proxy payment (goods purchase, payment of import tax, VAT on import goods- if any, freight, goods insurance, customs fees,…), or paying taxes as agreed upon with the import-entrusted party, recording:

Debit Account 331 - Payable to sellers (import-entrusted units)

Credit Accounts 111, 112.

- Upon receipt of equipment and/or goods delivered by the import-entrusted party under the import-entrusting contracts, based on sale invoices from the import-entrusted party, recording:

Debit Accounts 152, 211,…

Or Debit Account 156 - Goods (1561,1562)

Debit Account 133 - Deducted VAT (1331, 1332)

Credit Account 331 - Payable to sellers (entrusted party) (regarding amounts payable to the import-entrusted party: goods purchase money, import tax, VAT on import goods, customs fees, expenses for domestic transportation) (entrusted party- if money already transferred for proxy payment in advance).

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Debit Accounts 157, 211, 241, 621, 632

Credit Accounts 152, 156

- If any equipment delivered for use is broken, for which the equipment suppliers agree to pay material compensations, entering the value of broken equipment, recording:

Debit Accounts 131, 331

Credit Accounts 241, 621, 632

At the same time recording as decrease the deducted VAT amounts for damaged equipment, recording:

Debit Accounts 131, 331

Credit Account 333 - Taxes and amounts payable to the State (3331)

Or Credit Account 133 - Deducted VAT

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- Based on the invoices of the entrusted party and the actually received goods, recording:

Debit Account 156 - Goods (1561, 1562)

Debit Account 133 - Deducted VAT (1331, 1332)

Credit Accounts 131, 331 (value of compensation equipment)

Credit Account 331 - Payable to sellers (The entrusted party) (Regarding relevant expenses: Import tax, VAT on import goods, customs fees, warehouse and/or storing yard rents, domestic transportation freight, which have been already paid by the entrusted party and must be reclaimed from the sellers, or advanced by the entrusting party).

b1) In cases where all the import tax, VAT on import goods, customs fees and expenses related to the additionally imported equipment have been advanced or paid to the entrusted party, all these expenses (which shall be borne by the sellers, including the value of supplementary equipment) shall later be reclaimed from the sellers.

- When advancing or paying them to the entrusted party, recording:

Debit Account 331 - Payable to sellers

Credit Accounts 111, 112

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Debit Account 138 - Other receivables

Credit Account 331 - Payable to sellers (import-entrusted units)

- When actually receiving money repaid by sellers, recording:

Debit Accounts 111, 112

Credit Account 138 - Other receivables

b2) Where the import-entrusting party only receives the equipment and parts thereof via the import-entrusted party while other accompanied expenses of the additionally imported equipment lot shall be reclaimed from the sellers directly by the import-entrusting party, the import-entrusting party shall only receive the sale invoices of B1 acknowledging the value of the paid equipment for making book entries:

Debit Account 156 - Goods (1561, 1562)

Debit Account 133 - Deducted VAT (1331, 1332)

Credit Accounts 138, 331 (value of compensated equipment)

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- Annually, based on after-enterprise income tax profits and the capital contribution percentage of each party as prescribed in the investment licenses, the enterprises shall determine the profits to be divided to the parties, which shall be approved by the Managing Boards through voting, recording:

Debit Account 421 - Undistributed profits

Credit Account 338 - Other payable, remittable (3388 - Detailed profits distributed to capital- contributing parties)

- Upon the expiry of re-investment duration, the foreign parties transfer abroad the profits divided on enterprise income tax which is reimbursed due to their re-investment, recording:

Debit Account 411 - Business capital sources (Business reinvestment capital sources)

Credit Account 338 - Other payable, remittable (3388 - Detailed profits distributed to the capital-contributing parties).

- When actually paying profits to capital-contributing parties, recording:

Debit Account 338 - Other payable, remittable (3388 - Detailed profits distributed to capital-contributing parties)

Credit Accounts 111, 112

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13.1. Accounting of tax on transfer of profits abroad

- When the foreign parties transfer their divided profits ( including the enterprise income tax refunded due to re-investment and profits earned from capital transfer) to their parent companies or to investors contributing business capital to enterprises overseas, they must pay tax on transfer of profits abroad according to current regulations, recording:

Debit Account 338 - Other payable, remittables (3388 - Detailed profits divided to foreign parties)

Credit Account 333 - Taxes and amounts payable to the State (3338)

- Upon the actual payment of tax on transfer of profits abroad, recording:

Debit Account 333 - Taxes and amounts payable to the State (3338)

Credit Accounts 111, 112

13.2. Accounting of the reimbursement of enterprise income tax in case of reinvestment

When the foreign investors receive the reimbursed amounts of enterprise income tax for reinvestment in projects being executed or in new projects under the Law on Foreign Investment in Vietnam:

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Debit Account 112 - Bank deposits

Credit Account 411 - Business capital sources (Business capital source for reinvestment).

- In case of receiving the reimbursed amounts of enterprise income tax for reinvestment in new projects, at the enterprises which receive the reimburse tax amount, recording:

Debit Account 112 - Bank deposits

Credit Account 411 - Business capital sources (Business capital sources for reinvestment).

- If the foreign investors fail to use the reimbursed enterprise income tax amounts for reinvestment, they must return those reimbursed tax amounts plus the interests thereon calculated being equal to the loan interest on the returned tax amounts and these operations must not be reflected on the accounting books of the enterprises.

13.3. Accounting of tax on transfer of contributed capital

Where profits are generated from the transfer of contributed capital to the foreign party when a party (the Vietnamese party or the foreign party) repurchases the contributed capital portion of the other party in order to become the sole owner of the enterprise and the purchase of contributed capital portions should be accounted according to charge rates, namely the corresponding cash amount required for the purchasers to be allowed to enter the expenses for such purchase of contributed capital portions (which may be higher or lower than the book values of the transferred capital amounts) made on the date of transfer, the contributed capital transferors with income from the capital transfer must pay tax on income from the transfer of contributed capital. Enterprises shall not account tax on transfer of contributed capitals of the partners.

14. Regarding the appropriation, use and final settlement of prior-deducted expenses for job loss allowances

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The expenses for job-loss allowances are amounts to be paid by enterprises to laborers when they quit their jobs according to current regulations of the State.

The job-loss allowances for laborers can be subtracted from the taxable incomes of enterprises according to the provisions in Article 9, Chapter II of the Enterprise Income Tax Law.

Where these expenses are expected to be large upon the expiry of the investment licenses, are related to the implementation of the State’s current regulations for laborers and accord the commitments in the labor contracts signed with the laborers, in principle, the enterprises may make advance deductions from the business expenses of the relevant fiscal years for to each laborer to reserve for these expenses.

The bases for making advance deductions as reserve for job loss allowance expenses for laborers shall be calculated on the amount expected to pay to each laborer according to the State’s current regulations for laborers and the labor contracts signed with laborers. The levels of deduction for setting up this reserve shall not exceed one month’s wages of the laborers on the average payroll of the months in the year.

Annually, the enterprises must clearly settle the advance appropriation and the use of thereof for job-loss allowance for laborers as well as the balance thereof to be carried forward to subsequent fiscal years.

The unused amounts of advance appropriation for job-loss allowance for laborers must be recorded as expense decrease.

b) Accounting of the advance appropriation of expenses for job loss allowance

- When making advance appropriation of expenses for job loss allowance for laborers, which are calculated into business expenses in the period, recording:

Debit Account 642 - Enterprise management expenses

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- The unused advance appropriation amounts for job-loss allowance for laborers must be re-entered as decrease of enterprise management expenses, recording:

Debit Account 335 - Payable expenses (detailed advance appropriation for job-loss allowances for laborers)

Credit Account 642 - Enterprise management expenses

15. Regarding the gradual distribution and advance appropriation of expenses for fixed-asset overhauls

a) Expenses for overhaul of fixed assets, advance deduction or gradual distribution of expenses for overhaul of fixed assets

The expenses for overhaul of fixed assets are considered expenditures and accounted directly or distributed gradually into business expenses in the period.

For some particular sectors where the expenses for overhaul of fixed assets arise irregularly among the fiscal years, if enterprises wish to deduct in advance the expenses for overhaul of fixed assets into the current fiscal year while the overhaul of fixed assets will arise in the subsequent fiscal years, they must draw up plans on advance deduction of expenses for overhaul of fixed assets and submit them to the Finance Ministry for consideration and decision. After getting the written approval of the Finance Ministry, the enterprises must notify their direct managing tax offices thereof. The enterprises must settle the actual overhaul expenses against the prior-deducted overhaul expenses; if the actual overhaul expenses are larger or smaller than the prior-deducted expenses, they may additionally calculate them into the business expenses in the period or gradually distribute them (if the actual expenses are larger than the prior-deducted expenses), or return the amounts deducted in excess (if the prior-deducted amounts are larger than the actual expense amounts).

If enterprises of particular sectors apply the method of gradual distribution of fixed-asset overhaul expenses into subsequent business periods, they must also draw up plans for gradual distribution of fixed asset overhaul expenses and notify the direct managing tax offices thereof.

b) Accounting of fixed-asset overhaul expenses, prior-deduction or gradual distribution of fixed-asset overhaul expenses:

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Debit Accounts 627, 641, 642,…

Debit Account 133 - Deducted VAT (1331)

Credit Accounts 111, 112, 152, 153, 334, 338, 331,…

- Where the fixed-asset overhaul expenses are large and related to many accounting periods, the enterprises shall make the gradual distribution of these expenses:

 When the fixed-asset overhaul expenses actually arise in the accounting period, recording:

Debit Account 242 - Long-term prepaid advance (distributed gradually into the subsequent fiscal years)

Debit Account 133 - Deducted VAT (1331)

Credit Accounts 111, 112, 152, 153, 334, 338, 331,…

 When gradually distributing fixed asset overhaul expenses into subsequent business periods, recording:

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Credit Account 242 - Long-term prepaid expenses (distributed gradually into subsequent fiscal years)

- Where fixed-asset overhaul expenses arise irregularly among the fiscal years, if the enterprises wish to deduct them in advance into the current fiscal year and the overhaul of fixed assets shall arise in the subsequent fiscal years, they must draw up plans for advance deduction of fixed- asset overhaul expenses and settle the amounts deducted in advance against the actual expense amounts:

 When deducting in advance the fixed-asset overhaul expenses into the expenses of the accounting period, recording:

Debit Accounts 627, 641, 642,…

Credit Account 335 - Payable expenses

 When fixed-asset overhaul expenses actually arise in subsequent business periods, recording:

Debit Account 241 - Unfinished capital construction

Debit Account 133 - Deducted VAT (1331)

Credit Accounts 111, 112, 152, 153, 334, 338, 331,…

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Debit Account 335 - Payable expenses

Credit Account 241 - Unfinished capital construction

 Where the actual fixed-asset overhaul expenses are larger than the prior-deducted amounts, the actual expense surplus shall also be entered:

Debit Accounts 627, 641, 642 (actual expense surplus over the prior-deducted amount)

Debit Account 335 - Payable expenses (equal to the prior-deducted amounts)

Credit Account 241 - Unfinished capital construction (settling the actually arising fixed-asset overhaul expenses).

 Where the actual fixed-asset overhaul expenses are smaller than the prior-deducted amounts, the differences between the prior-deducted amounts and the actual expense amounts must be reimbursed:

Carrying over the actual overhaul expenses, recording:

Debit Account 335 - Payable expenses

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Reimbursing the over-deducted amounts for fixed-asset overhaul:

Debit Account 335 - Payable expenses (excessive prior-deducted amounts)

Credit relevant Accounts.

IV. FINANCIAL REPORT

A number of supplements to the methods of making financial reports

1. The accounting balance sheet (Form B01- DN):

1.1. Section A - Current assets and short-term investment: Canceling prepaid expense index (Code 152); adding indexes to Part IV. Inventories (Code 140); tax-suspension warehouse (Code 149).

1.2. Section B - Fixed assets and long-term investment: Supplementing indexes to Part V- Long-term prepaid expenses (Code 241): Reflecting expenses distributed in a fiscal year at the time of reporting. Figures for recording into this index is the Debit balance of Account 242- Long-term prepaid expenses on Ledger. Section B- Fixed assets and long-term investment (Code 200) shall be calculated = Code 210 + Code 220 + Code 230 + Code 240 + Code 241.

2. Business result report (Form B02- DN): Supplementing and amending a number of headings of Part I- Profits, losses of the business result report.

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2.2. The Index Payable enterprise income tax (Code 41): Reflecting the enterprise income tax amount payable in the reporting period, which is determined on the basis of total pre-tax profits (Code 41) plus (+) non-subtracted expenses to calculate the taxable income; minus (-) income amounts not liable to enterprise income tax (if any), including the loss amount carried from the preceding year (according to the provisions of the Enterprise Income Tax Law) multiplied by (x) the enterprise income tax rate prescribed in the investment licenses.

2.3. Index After-tax profits (29-30) (Code 42): means the enterprises’ after-tax profits of the current year. This index is determined on the basis of adjusting the contents determined in Items 1.1 and 1.2 above.

2.4. Where the enterprises have their business losses of the preceding year carried forward, following Code 42, the enterprises may supplement the Index Accumulated losses carried forward to following year (Code 43): Reflecting the current year’s losses carried forward into the subsequent year, including losses carried forward into the subsequent year according to the provisions of the Enterprise Income Tax Law.

3. Amending and supplementing a number of detailed indexes in the financial report explanation.

Adding the explanations on the land use right value and assets associated to land.

Part II

PROVISIONS ON PERFORMING THE WORK OF ACCOUNTING, AUDIT FOR VIETNAM-BASED RESIDENT ESTABLISHMENTS OF FOREIGN COMPANIES AND FOREIGN CONTRACTORS

1. Principle for application of the accounting regime

The Vietnam-based resident establishments of foreign companies such as trade branches; foreign organizations and individuals conducting business activities in Vietnam not in the investment forms prescribed by the Law on Foreign Investment in Vietnam (called foreign contractors for short) shall have to:

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 - Perform the accounting work to reflect honestly and fully the real fluctuation and existing numbers of assets and capital sources currently under their ownership, use or management according to commitments in conformity with law provisions; reflect turnover, income, business expenses and results, reflect the situation of performance  of obligations to pay taxes and remittances to the State budget.

2. Applicable accounting regime

- The Vietnam-based resident establishments of foreign companies must abide by the provisions in Circular No. 60/TC-CDKT of September 1, 1997, Circular No. 155/1998/TT-BTC of December 8, 1998 of the Finance Ministry, guiding the implementation of the accounting work for foreign-invested enterprises and organizations as well as the provisions of this Circular.

- Foreign organizations and individuals conducting business activities in Vietnam not in the investment forms prescribed in the Law on Foreign Investment in Vietnam (called foreign contractors for short) may implement the accounting work according to the system of Vietnamese enterprises’ accounting regulations or other commonly-used accounting regime.

- The petroleum contractors shall implement the accounting regimes submitted by themselves and approved by the Finance Ministry.

3. Registration of applicable accounting regimes

3.1. For Vietnam-based resident establishments of foreign companies: They must comply with the provisions on registration of applicable accounting regimes at Point B, Part III, Circular No. 60/TC-CDKT of September 1, 1997 of the Finance Ministry.

3.2. For foreign contractors:

a) Foreign contractors paying VAT by deduction method as prescribed in the VAT Law and paying enterprise income tax as provided for in the Enterprise Income Tax Law must implement the accounting work according to the Vietnamese enterprises’ accounting regime and register the applicable accounting regimes with the Finance Ministry and get the Finance Ministry’s approval before the implementation thereof (according to provisions at Point B, Part III, Circular No.60/TC-CDKT of September 1, 1997 of the Finance Ministry).

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The foreign contractors mentioned above (Point b) shall, within 10 working days as from the time of signing contracts with Vietnamese parties or contractors, have to register the Vietnamese accounting regimes with the Finance Ministry. Within 5 working days as from the date of receiving the valid dossiers, the Finance Ministry shall give its official opinions in writing on the registration of the accounting regimes of  the contractors.

c) Foreign organizations and individuals paying VAT by method of direct calculation on added value and paying the enterprise income tax by method of tax setting may apply other commonly used accounting regime without having to register the applicable accounting regimes with the Finance Ministry.

Part III

ORGANIZATION OF IMPLEMENTATION

This Circular takes implementation effect as from the fiscal year of 2002.

If problems arise in the course of implementation, they should be reported to the Finance Ministry for settlement.

FOR THE FINANCE MINISTER
VICE MINISTER





Tran Van Ta

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