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THE
MINISTRY OF FINANCE
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SOCIALIST
REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
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No:
165/2002/QD-BTC
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Hanoi,
December 31, 2002
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DECISION
PROMULGATING AND PUBLICIZING SIX (06) VIETNAMESE ACCOUNTING
STANDARDS (PHASE 2)
THE MINISTER OF FINANCE
Pursuant to the Accountancy and Statistics
Ordinance promulgated under with Order No. 06-LCT/HDNN of May 20, 1998 of the State
Council and the Charter of State Accountancy Organization, promulgated together
with Decree No. 25-HDBT of the Council of Ministers (now the Government);
Pursuant to the Government’s Decree No. 86/2002/ND-CP of November 5, 2002
defining the functions, tasks, powers and organizational structures of the
ministries and ministerial-level agencies;
Pursuant to the Government’s Decree No. 178/CP of October 28, 1994 on the
tasks, powers and organizational apparatus of the Ministry of Finance;
In order to meet the requirements of renewal of the economic and financial
management mechanisms, raise the quality of supplied accountancy information in
the national economy and to supervise and control the quality of the
accountancy work;
At the proposals of the director of the Accounting Regime Department and the
director of the Office of the Ministry of Finance,
DECIDES:
Article 1.- To
promulgate six (06) Vietnamese accounting standards (phase 2) with the
following codes and names:
- Standard No. 01 - General standard;
- Standard No. 06 - Leases;
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- Standard No. 15 - Construction contracts;
- Standard No. 16 - Borrowing costs;
- Standard No. 24 - Cash flow statements;
Article 2.- The six
Vietnamese accounting standards promulgated together with this Decision shall
apply to all enterprises of all branches and economic sectors nationwide.
Article 3.- This
Decision takes effect as from January 1, 2003. Concrete accounting regimes must
be amended and/or supplemented appropriately to suit the six accounting
standards promulgated together with this Decision
Article 4.- The director
of the Accounting Regime Department, the director of the Office, and the heads
of the concerned units under and attached to the Ministry of Finance shall have
to guide and inspect the implementation of this Decision.
FOR THE MINISTER OF FINANCE
VICE MINISTER
Tran Van Ta
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STANDARD
NO. 01
GENERAL STANDARD
(Promulgated and publicized together with the Finance Minister’s Decision
No. 165/2002/QD-BTC
of December 31, 2002)
GENERAL PROVISIONS
01. This standard aims to prescribe and guide
the basic accounting principles and requirements, elements of the enterprises’
financial statements and the recognition thereof, in order to:
a/ Serve as a basis for formulating and
perfecting specific accounting standards and accounting regimes after uniform
models.
b/ Assist enterprises in making accounting
entries and financial statements in a uniform manner according to the
promulgated accounting standards and accounting regimes and handle matters not
yet specified in order to ensure true and reasonable information in the
financial statements.
c/ Assist auditors and accounting controllers in
giving comments on the conformity of the financial statements with the
accounting standards and accounting regimes.
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02. The basic accounting principles and
requirements as well as elements of the financial statements, which are
prescribed in this standard and specified in each accounting standard must be
applied to all enterprises of all economic sectors nationwide.
This standard shall not replace specific
accounting standards. Implementation shall be based on specific accounting
standards. For cases not yet prescribed in specific accounting standards, they
shall comply with the general standard.
STANDARD CONTENTS BASIC ACCOUNTING PRINCIPLES
Accrual basis
03. All economic and financial operations of
enterprises, which are related to assets, liabilities, owners’ equity,
revenues, and costs must be recorded in accounting books at the time they
arise, not at the time of the actual receipt or payment of cash or cash
equivalents. Financial statements made on the basis of accrual shall reflect
the financial status of enterprises in the past, at present and in the future.
Continuous operation
04. Financial statements must be made on the
basis of the assumption that enterprises are operating continuously and will
continue business activities normally in the near future, i.e., they have no
intention or are not compelled to cease operation or to substantially downscale
their operation. Where reality differs from the continuous operation
assumption, the financial statements must be made on another basis, which must
be explained.
Historical cost
05. Assets must be recognized according to their
historical cost. The historical cost of an asset shall be calculated according
to the cash amount or cash equivalent already paid or to be paid, or according
to the reasonable value of the asset at the time the asset is recognized. The
assets’ historical costs must not be modified except otherwise prescribed in
specific accounting standards .
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06. The recognition of revenues and that of
costs must match. When a revenues is recognized, a corresponding cost related
to the creation of such revenue must be recognized. Costs corresponding to
revenues include costs of the period in which revenues are created and costs of
the previous periods or payable costs related to the revenues of such period.
Consistency
07. The accounting policies and methods selected
by enterprises must be applied consistently within at least one accounting
year. Where appear changes in the selected accounting policies or methods, the
reasons for and impacts of such changes must be presented in the explanations
of financial statements.
Prudence
08. Prudence means the examination,
consideration and anticipation needed to establish accounting estimates under
uncertain conditions. The prudence principle requires that:
a/ The reserves must be set up, which must not
be too big;
b/ The values of assets and incomes are not
overestimated;
c/ The values of liabilities and costs are not
underestimated;
d/ Revenues and incomes shall be recognized only
when there are solid evidences of the possibility of obtaining economic
benefits, while costs must be recognized when there are evidences of the
possibility of arising costs.
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09. Information shall be considered material in
cases where the insufficiency or inaccuracy of such information may distort
significantly the financial statements, thus affecting the economic decisions
of the users of the financial statements. Materiality depends on the amount and
nature of information or errors assessed in particular circumstances. The
materiality of information must be examined both quantitatively and
qualitatively.
BASIC REQUIREMENTS FOR ACCOUNTING
Honesty
10. Accounting information and data must be
recorded and reported on the basis of adequate and objective evidences and true
to the actual situation, content, nature and values of arising economic
operations.
Objectivity
11. Accounting information and data must be
recorded and reported according to reality, not be distorted nor falsified.
Fullness
12. All arising economic and financial
operations related to the accounting period must be recorded and reported in
full, not be omitted.
Timeliness
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Understandability
14. Accounting information and data presented in
the financial statements must be explicit and easily understandable to users.
Users mean people with average knowledge about business, economics, finance and
accounting. Information on complicated matters in the financial statements must
be expounded in the explanation part.
Comparability
15. Accounting information and data of different
accounting periods of an enterprise and of different enterprises may be
comparable only when they are calculated and presented in an uniform way. In
case of lack of uniformity, expositions must be given in the explanation part
so that the users of the financial statements may compare information of
different accounting periods, different enterprises, or between execution
information and projected or planned information.
16. The accounting requirements mentioned in
paragraphs 10, 11, 12, 13, 14 and 15 above must be satisfied simultaneously.
For example: The honesty requirement also embraces the objectivity, timeliness,
fullness, understandability and comparability requirements.
ELEMENTS OF FINANCIAL STATEMENTS
17. The financial statements reflect the
financial status of enterprises through summing up economic and financial
operations of the same economic nature in their elements. The elements directly
related to the determination of the financial status in the balance sheets
include assets, liabilities and owners’ equity. The elements directly related
to the assessment of the business situation and results in the statements on
business results are revenues, other incomes, costs and business results.
Financial status
18. The elements directly related to the
determination and evaluation of the financial status are assets, liabilities
and owners’ equity. These elements are defined as follows:
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b/ Liabilities mean the current obligations of
an enterprise, arising from the past transactions and events, which must be
settled by the enterprise with its own resources.
c/ Owners’ equity means the value of the
enterprises’ capital, being equal to the difference between the value of the
enterprise’s assets minus (-) its liabilities.
19. When determining the items in the elements
of a financial statement, attention must be paid to their ownership forms and
economic contents. In some cases, though assets do not fall under the
enterprises’ ownership, they are still reflected in the elements of the
financial statements due to their economic contents. For example, in case of
financial leases, the economic form and content are that the lessee-enterprises
obtain economic benefits from the use of leased assets during most of the
useful life of the assets; in return the lessee-enterprises are obliged to pay
a sum that approximates the reasonable value of the assets as well as related
financial costs. The financial leasing operation gives rise to the item
"Assets" and the item "Liabilities" in the balance sheets
of the lessee-enterprises.
Assets
20. Future economic benefits of an asset are the
potential to increase the sources of cash and cash equivalents of an enterprise
or to reduce cash amounts to be paid by the enterprise.
21. Future economic benefits of an asset are
demonstrated in such cases as :
a/ Being used in isolation or in combination with
other assets in the manufacture of products for sale or in the provision of
services for customers;
b/ For sale or exchange for another asset;
c/ For payment of liabilities;
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22. Assets may have the physical form such as
workshops, machinery, equipment, supplies, goods or the non-physical form, such
as copyright or patents but must gain future economic benefits and are under
the control of enterprises.
23. Assets of enterprises also include assets
that enterprises do not own but can control them and gain future economic
benefits therefrom, such as assets given for financial leases; or assets that
enterprise own and can gain future economic benefits therefrom but may not
control them legally, such as technical know-hows obtained from development
activities, which may satisfy the conditions required in the asset definition
when they are still kept secret and enterprises can still gain economic
benefits therefrom.
24. Assets of enterprises are formed from the past
transactions or events, such as capital contribution, procurement,
self-production, grants or donations. Transactions or events expected to arise
in future will not lead to an increase in assets.
25. Normally, when costs are incurred, they will
create assets. Costs which do not bring about future economic benefits will not
create assets; or in other cases, no costs are incurred but assets are still
created, such as contributed capital, allocated or donated assets.
Liabilities
26. Liabilities determine the current
obligations of an enterprise when it receives an asset, participates in a
commitment or is bound to legal obligations.
27. The settlement of current obligations may be
effected in many ways, such as:
a/ Payment in cash;
b/ Payment with another asset;
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d/ Replacement of this obligation with another;
e/ Conversion of the liability obligation into
owners’ equity.
28. Liabilities arise from past transactions and
events, such as purchase of goods without payment, use of services without
payment, borrowing, to merchandise warranty commitment, contractual obligation
commitment, payables to employees, remittable taxes, and other payables.
Owners’ equity
29. Owners’ equity is reflected in the balance
sheets, including investors’ capital, equity surplus, retained profits, funds,
undistributed profits, exchange rate differences and differences from asset
revaluation.
a/ Investors’ capital may be enterprise owners’
capital, contributed capital, equities, and the State’s capital.
b/ Equity surplus is the difference between the
share par value and the actual issuance prices;
c/ Retained profits are after-tax profits
retained for capital supplementation;
d/ Funds include reserve fund, stand-by fund,
development investment fund;
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f/ Exchange rate differences include:
+ Exchange rate difference arising in the
construction investment process;
+ Exchange rate difference arising when
enterprises in the country include the financial statements of their activities
carried out abroad using accounting currency other than the accounting currency
of the reporting enterprises.
g/ Difference from the asset revaluation is the
difference between the book value of assets and the revalued value of assets
under the State’s decisions, or when assets are contributed as joint-venture
capital or shares.
Business situation
30. Profits are used as a measure of the business
results of enterprises. The elements directly related to the profit
determination are revenues, other incomes and costs. Revenues, other incomes,
costs and profits are criteria reflecting the business situation of
enterprises.
31. The elements of revenues, other incomes and
costs are defined as follows:
a/ Revenues and other incomes: are the total
value of economic benefits earned by an enterprise in the accounting period,
arising from the enterprise’s normal production, business and other operations,
contributing to increasing the owners’ equity, excluding capital contributions
made by shareholders or owners.
b/ Costs are the total value of amounts which
reduce economic benefits in the accounting period in the forms of amounts
spent, asset depreciation amounts, or give rise to liabilities leading to a
decrease in the owners’ equity, excluding amounts distributed to shareholders
or owners.
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33. The elements of revenues, other incomes and
costs may be presented in many ways in the reports on business results so as to
describe the business situation of enterprises, such as revenues, costs and
profits of normal business and other operations.
Revenues and other incomes
34. Revenues arises in the process of normal
business operations of enterprises and often include: sales revenues, service
provision revenues, interests, royalties, dividends and shared profits…
35. Other incomes include incomes arising from
operations other than revenues-generating operations, such as incomes from
liquidation or sale of fixed assets, fines collected from customers for their
contract breaches…
Costs
36. Costs include production and business costs
arising in the process of normal business operations of enterprises, and other
costs.
37. Production and business costs arising in the
process of normal business operations of enterprises, such as cost of goods
sold, sale costs. enterprise management costs, costs for loan interests, and
costs related to letting other parties use assets with yields, royalties… These
costs arise in the form of cash and cash equivalents, inventories, machinery
and equipment depreciation.
38. Other costs include costs other than
production and business costs arising in the process of normal business
operations, such as costs for liquidation and sale of fixed assets, fines
imposed by customers for contract breaches, etc.
RECOGNITION OF THE ELEMENTS OF THE FINANCIAL
STATEMENTS
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a/ Being certain to gain or reduce future
economic benefits;
b/ Such item has some value which can be
determined in a reliable manner.
Recognition of assets
40. Assets will be recognized in the balance
sheets when enterprises are certain to gain future economic benefits therefrom
and the value of such assets are determined in a reliable way.
41. Assets will not be recognized in the balance
sheets when costs incurred are not certain to yield future economic benefits
for enterprises and these costs will be recognized in the reports on business
results as soon as they arise.
Recognition of liabilities
42. Liabilities will be recognized in the
balance sheets when there are adequate conditions to ascertain that enterprises
will have to spend a cash amount on the current obligations they have to pay
for, and such liabilities must be determined in a reliable way.
Recognition of revenues and other incomes
43. Revenues and other incomes will be
recognized in the reports on business results when they gain future economic
benefits related to the increase in assets or decrease in liabilities, and such
increased value must be determined in a reliable way.
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44. Production, business and other costs will be
recognized in the reports on business results when these costs reduce future
economic benefits related to the decrease in assets or increase in liabilities,
and these costs must be determined in a reliable way.
45. Costs recognized in the reports on business
results must comply with the principle of matching between revenues and cost.
46. When economic benefits expected to be
obtained over many accounting periods are related to revenues and other incomes
which are determined indirectly, the related costs will be recognized in the
reports on business results on the basis of systematic or proportional
amortization.
47. A cost will be immediately recognized in the
reports on business results in the period if it fails to bring about economic
benefits in subsequent periods.
STANDARD
NO. 06
LEASES
(Promulgated and publicized together with the Finance Minister’s Decision
No. 165/2002/QD-BTC
of December 31, 2002)
GENERAL PROVISIONS
01. This standard aims to prescribe and guide
for lessees and lessors the accounting principles and methods for financial
lease and operating lease, serving as a basis for making accounting entries and
financial statements.
02. This standard shall apply to the accounting
of all leases, excluding:
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b/ Lease contracts for using copyrights of items
such as motion picture films, video tapes, operas, copyrights and patents.
03. This standard shall apply also to the
transfer of the right to use assets even when the lessors are requested to
provide services mostly related to the operation, repair or maintenance of the
leased assets. This standard shall not apply to service contracts not involving
the transfer of the right to use assets.
04. The terms used in this standard are
construed as follows:
A lease means an agreement between the lessor
and the lessee whereby the lessor transfers the right to use an asset to the
lessee for a certain period of time in return for a lease payment made in a
lump sum or installments.
A financial lease is a lease whereby the lessor
transfers most of the risks and rewards associated with the ownership over an asset
to the lessee. The ownership over the asset may be transferred at the end of
the lease term.
An operating lease is a lease other than a
financial lease.
A non-cancelable lease contract is the one that
the two involved parties cannot unilaterally terminate, except in the following
cases:
a/ Upon the occurrence of unusual events, such
as:
- The lessor fails to hand the leased asset on
schedule;
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- The lessee or lessor breaches the contract;
- The lessee goes bankrupt or is dissolved;
- The guarantor goes bankrupt or is dissolved
while the lessor rejects the lessee’s proposal on guaranty termination or
substitute guarantor;
- The leased asset is lost or irreparably
damaged.
b/ With the consent of the lessor;
c/ If the two parties enter into a new contract
on lease of the same or similar asset;
d/ The lessee pays an additional amount
immediately at the start of the lease.
The inception of the lease is the earlier date
of either of the two dates: The date when the right to use the asset is
transferred to the lessee and the date when the lease payment begins to be
calculated under the provisions of the lease contract.
The lease term is the period of the
non-cancelable lease contract plus (+) the duration for which the lessee have
the option to continue leasing the asset as prescribed in the contract, with or
without additional payment; this option is determined with relative certainty
right at the inception of the lease.
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a/ For the lessee: They are the payments which
the lessee must make to the lessor for a lease over the lease term (excluding
service costs and taxes which have been paid by the lessor and must be
reimbursed by the lessee, and a contingent rent), plus any value that the
lessee or a party related to the lessee has guaranteed to pay.
b/ For the lessor: They are the payments which
the lessee must make to the lessor over the lease term (excluding service costs
and taxes which have been already paid by the lessor and must be reimbursed by
the lessee, and a contingent rent) plus (+) any residual value of the leased
asset, which has been guaranteed to be paid by:
- The lessee;
- A party related to the lessee; or
- An independent financially capable third
party.
c/ Where the lease contract contains the
provision on the lessee’s right to purchase the leased asset at a price lower
than the reasonable value on the date of purchase, the minimum lease payments
(for both lessor and lessee) shall include the minimum payment inscribed in the
contract for the lease term and the payment required for the purchase of such
asset.
Reasonable value is the amount for which an
asset can be exchanged or the value of a liability which may be settled
voluntarily between the knowledgeable parties in the par value exchange.
Residual value of a leased asset is the
estimated value at the inception of the lease, which the lessor expects to
obtain from the leased asset at the end of the lease.
Guaranteed residual value of a leased asset:
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b/ For the lessor: It is the residual value of a
leased asset, which is guaranteed to be paid by the lessee or a financially
capable third party not related to the lessor.
Unguaranteed residual value of a leased asset:
is the residual value of a leased asset, which is determined by the lessor and
is not guaranteed to be paid by the lessee or a party related thereto or is
guaranteed to be paid only by one party related to the lessor.
Economic life: is the period over which an asset
is expected to be economically usable or the number of products or similar
units expected to be obtained from the leased asset by one or more users.
Useful life is the remaining economic life of
the leased asset, counting from the inception of the lease, but not restricted
by the lease term.
Gross investment in the financial lease contract
is the aggregate of the minimum lease payments under a financial lease contract
(for the lessor) plus (+) the unguaranteed residual value of the leased asset.
Unearned financial revenue is the aggregate of
the minimum lease payments plus (+) the unguaranteed residual value and minus
(-) the present value of these amounts, calculated at the interest rate
implicit in the financial lease.
Net investment in the financial lease is the
difference between the gross investment in the financial lease and the unearned
financial revenue.
The interest rate implicit in the financial
lease contract is the discount rate used, at the inception of the asset lease,
to calculate the present value of the minimum lease payment and the present
value of the unguaranteed residual value to ensure that their aggregate is
equal to the reasonable value of the leased asset.
Incremental borrowing interest rate is the
interest rate the lessee must pay for a similar financial lease or that at the
inception of the asset lease the lessee must pay to borrow for a similar term
and with a similar security an amount necessary to purchase the asset.
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05. Lease contracts that include provisions
permitting the lessees to purchase the assets upon the satisfaction of all
conditions agreed in such contracts are called hire purchase contracts.
CONTENTS OF THE STANDARD
Classification of leases
06. The classification of leases adopted in this
standard is based on the extent to which risks and rewards associated with the
ownership of a leased asset are transferred from the lessors to the lessees.
Risks include the possibilities of losses from idle production capacity or
technological backwardness and of unfavorable changes in the economic situation,
thus affecting the capital recoverability. Rewards are profits expected to be
earned from the operation of the leased assets over their economic life and
incomes expected to be gained from the increased value of the assets or the
value recoverable from the assets’ liquidation.
07. Leases will be classified as financial
leases if the contents of the lease contracts include the transfer of most of
risks and rewards associated with the assets’ ownership. Leases will be
classified as operating leases if the contents of the lease contracts do not
include the transfer of most of risks and rewards associated with the assets’
ownership.
08. The lessors and lessees must determine the
leases as financial or operating leases right at the inception of the asset lease.
09. The classification of leases as financial or
operating leases must be based on the nature of the provisions of the
contracts. Below are the examples of cases that normally lead to financial
leases:
a/ The lessor transfers the asset’s ownership to
the lessee at the end of the lease term;
b/ At the inception of the lease, the lessee has
the right to purchase the leased asset at a price expected to be lower than the
reasonable price at the end of the lease term;
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d/ At the inception of the lease, the present
value of the minimum lease payment accounts for most of the reasonable value of
the leased asset;
e/ The leased asset is of a special-use type
which can be used only by the lessee without major modification or overhaul.
10. Lease contracts will be also considered
financial lease contracts if they fall into at least one of the following three
cases:
a/ If the lessee cancels the contract and pays
compensation for damage associated with the contract cancellation to the
lessor;
b/ Incomes or losses from the change in the
reasonable value of the residual value of the leased asset are associated with
the lessee;
c/ The lessee is able to continue leasing the
asset after the lease contract expires at a rent lower than market rents.
11. Lease classification shall be made at the
inception of the lease. If at any time the lessee and the lessor agree to
change the provisions of the contract (but not on the renewal of the contract),
which leads to a different classification of the lease under the criteria in
paragraphs 06 thru 10 at the inception of the lease, the revised provisions
shall apply to the entire lease term. Changes in estimates (for example,
changes in estimates of the economic life or of the residual value of the
leased asset) or changes in the lessees’ payment capability, however, shall not
result in a new classification of the lease.
12. Lease of assets being the right to use land
and houses will be classified as operating or financial lease. Nevertheless, as
land normally has an indefinite economic life and the ownership is not
transferred to the lessees at the end of the lease term and the lessees do not
accept most of risks and rewards associated with the land ownership, the lease
of assets being the land use right will be usually classified as operating
lease. The rents paid for assets being the land use right shall be amortized
over the entire lease term.
Recognition of leases in the financial
statements of lessees
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13. At the inception of a financial lease, the
lessee will recognize the financial leased asset as an asset and liability in
its balance sheet with the same value equal to the reasonable value of the
leased asset. If the reasonable value of the leased asset exceeds the present
value of the minimum lease payments for the lease, the present value of the
minimum lease payments shall be recorded. The discount rate used for calculating
the present value of the minimum lease payments for the lease will be the
interest rate implicit in the asset lease contracts or the interest rate
inscribed therein. If the interest rate implicit in the lease contract is
undeterminable, the lessee’s incremental borrowing interest rate will be used
for calculating the present value of the minimum lease payments.
14. When presenting liabilities concerning
financial leases in the financial statements, short-term and long-term
liabilities must be distinguished.
15. Initial direct costs incurred in connection
with financial leasing activities, such as costs for lease contract negotiation
and signing will be recognized into the historical costs of the leased assets.
16. Payments for a financial lease of assets
will be apportioned between financial costs and the amounts payable for debt
principals. Financial costs must be calculated according to each accounting
period of the entire lease term at a constant periodic interest rate on the
remaining debit balance of each accounting period.
17. A financial lease shall give rise to asset
depreciation costs as well as financial costs in each accounting period. The
depreciation policy for a leased asset must be consistent with the depreciation
policy for assets of the same kind under the ownership of the
lessee-enterprises. If it is uncertain that the lessees would obtain the
assets’ ownership by the end of the lease term, the leased asset will be
depreciated over the shorter duration between the lease term and its useful
life.
18. When presenting leased assets in the
financial statements, the provisions of the accounting standard "Tangible
fixed assets" must be complied with.
Operating leases
19. Payments for an operating lease (excluding
service, insurance and maintenance costs) must be recognized as production and
business costs by the straight line method during the entire asset lease term
regardless of the payment mode, unless more reasonable calculation methods are
applied.
Recognition of asset leases in the financial
statements of lessors
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20. The lessors must recognize the value of
financial leased assets in their balance sheets as a receivable equal to the
value of net investment stated in the financial lease contracts.
21. For financial leases, most of risks and
economic rewards are associated with the assets’ ownership transferred to the
lessees, and, therefore, all receivables therefrom must be recognized as
receivables for principal capital and financial revenues from the lessors’
investments and services.
22. The recognition of financial revenues must
be based on the constant periodic interest rate on the total balance of net
investment in financial leases.
23. The lessors shall amortize financial
revenues over the entire lease term on the basis of the constant periodic
interest rate over the balance of net investment in financial leases. Payments
paid for financial leases in each accounting period (excluding costs for the
provision of services) shall be allowed to be reduced from gross investment in
order to reduce both the principal capital and the unearned financial revenues.
24. Initial direct costs to create financial
revenues, such as commissions and legal fees incurred in the contract
negotiation and signing, are often paid by lessors and shall be recognized as
cost in the period as soon as they are incurred or be amortized into costs over
the lease term in a way suitable to the recognition of revenues.
Operating leases
25. The lessors must recognize assets under
operating leases in their balance sheets, using the method of classification of
enterprises’ assets.
26. Revenues from operating leases must be
recognized by the straight line method over the entire lease term, regardless
of the payment modes, unless more reasonable calculation methods are applied.
27. Costs of operating leases, including
depreciation of leased assets, will be recognized as costs in the period during
which they are incurred.
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29. The depreciation of leased assets must be on
a basis consistent with the lessors’ depreciation policy applicable to similar
assets, and the depreciation costs must be calculated under the provisions of
the accounting standards "Tangible fixed assets" and "Intangible
fixed assets."
30. The lessors being manufacturing or trading
enterprises shall recognize revenues from operating leases according to each
lease term.
Asset sale and leaseback transactions
31. A asset sale and leaseback transaction is
effected when an asset is sold then leased back by the same seller. The
accounting method applicable to sale and leaseback transactions depends on the
type of lease.
32. If an asset sale and leaseback transaction
is a financial lease, the difference between the sale proceeds and the residual
value of the asset must be amortized over the entire lease term.
33. If the asset leaseback is a financial lease,
whereby the lessor provides finance for the lessee, with asset security. The
difference between the proceeds from the sale of the asset and the residual
value of the asset in the accounting books shall not be immediately recognized
as a profit from the sale of the asset; instead it must be recognized as
unearned income and amortized over the entire lease term.
34. Sale and leaseback transactions being
operating leases will be recognized when:
- The sale price is agreed upon at the
reasonable value, any profit or loss must be recognized immediately in the
period during which it arises;
- If the sale price is lower than the reasonable
value, any profit or loss must be also recognized immediately in the period
during which it arises, except where the loss is offset with future lease
payments lower than the market rent. In this case, the loss shall not be
immediately recognized but must be amortized into costs corresponding to the
lease payments over the entire period during which the asset is expected to be
used;
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35. If an asset leaseback is an operating lease,
and the rent and sale price are agreed at the reasonable value, that is, a
normal sale transaction has been conducted, any profit or loss will be
accounted immediately in the period during which it arises.
36. For operating leases, if the reasonable
value of assets at the time of sale and leaseback is lower than the residual
value thereof, the loss being the difference between the residual value and the
reasonable value must be recognized immediately in the period during which it
arises.
37. The requirements on the presentation of the
financial statements of lessees and lessors regarding asset sale and leaseback
operations must be alike. Where the lease agreements contain a special
provision, it must be presented in the financial statements.
PRESENTATION OF FINANCIAL STATEMENTS
For the lessees
38. The lessees must present the following
information on financial leases:
a/ The residual value of the leased asset on the
financial statement date;
b/ Contingent rent recognized as a cost in the
period;
c/ Bases for determining the contingent rent;
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39. The lessees must present the following
information on operating leases:
a/ The total future minimum lease payments under
non-cancelable operating lease contracts with the following terms:
- Of one year or under;
- Of between over one year and five years;
- Of over five years.
b/ Bases for determining contingent rent.
For the lessors
40. The lessors must present the following
information on financial leases:
a/ The table of comparison between the total gross
investment in leases and the present value of the minimum lease payments
receivable on the financial statement date of the reporting periods, with the
following terms:
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- Of between over one year and five years;
- Of over five years.
b/ Unearned revenues from financial leases;
c/ The unguaranteed residual value of leased
assets, calculated by the lessor;
d/ Accumulated reserve for the bad receivables
regarding the minimum lease payments;
e/ Contingent rent recognized as revenues in the
period.
41. The lessors must present the following
information on operating leases:
a/ Future minimum lease payments under
non-cancelable operating lease contracts with the following terms:
- Of one year or under;
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- Of over five years.
b/ Total contingent rent recognized as revenues
in the period.
STANDARD
NO. 10
EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES
(Promulgated and publicized together with the Finance Minister’s Decision
No. 165/2002/QD-BTC
of December 31, 2002)
GENERAL PROVISIONS
01. This standard aims to prescribe and guide
the principles and methods of accounting the effects of changes in foreign
exchange rates, applicable to enterprises which have foreign currency
transactions or overseas activities. Foreign currency transactions and
financial statements of overseas activities must be converted into the
enterprises’ accounting currency, including initial recognition and reporting
on the balance sheet date; recognition of the foreign exchange rate difference;
and conversion of the financial statements of overseas activities as a basis
for making entries in accounting books, making and presenting the financial
statements.
02. This standard applies to:
a/ The accounting of foreign currency transactions;
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03. Enterprises must use Vietnam dong as an
accounting currency, unless they are permitted to use another common currency.
04. This standard does not prescribe the
conversion of an enterprise’ financial statements from an accounting currency
into another so as to facilitate the users that have been accustomed to the
such converted currency or for similar purposes.
05. This standard does not mention the
presentation of cash flows arising from foreign currency transactions and from
the conversion of cash flow statements of an overseas activity in the cash flow
statements (prescribed in the standard "Cash flow statements").
06. The terms in this standard are construed as
follows:
Overseas activities are branches, subsidiaries,
partnerships, joint-venture companies, business cooperation, and business
association of the reporting enterprises, which operate in countries other than
Vietnam.
Foreign-based establishments means activities in
foreign countries, which operate independently from the reporting enterprises.
Accounting currency is a currency officially used
in the making of accounting entries and financial statements.
Foreign currency is a currency other than the
accounting currency of an enterprise.
Exchange rate is the rate of exchange between
two currencies.
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Closing exchange rate is the exchange rate used
on the balance sheet date.
Net investment in a foreign-based establishment
is the portion of capital of the reporting enterprise in the total net asset of
such foreign-based establishment.
Monetary items are current cash and cash
equivalents, receivables or liabilities in fixed or determinable cash amounts.
Non-monetary items are items other than monetary
items.
Reasonable value is the value for which an asset
can be exchanged or the value of a liability which may be settled voluntarily
between knowledgeable parties in the par value exchange.
CONTENTS OF THE STANDARD
FOREIGN CURRENCY TRANSACTIONS
Initial recognition
07. Foreign currency transactions are
transactions determined in foreign currencies or requested to be paid for in
foreign currencies, including transactions that arise when an enterprise:
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b/ Borrows or lends money amounts to be paid or
received in foreign currencies;
c/ Becomes a partner (one party) to an
unperformed foreign exchange contract;
d/ Purchases or liquidates assets; incurs or
repays debts denominated in foreign currencies;
e/ Uses a currency for purchasing, selling or
exchanging for another currency.
08. A foreign currency transaction must be
accounted and initially recognized in the accounting currency by applying the
exchange rate between the accounting currency and the foreign currency on the
date of the transaction.
09. The exchange rate on the date of the
transaction will be regarded as spot exchange rate. Enterprises may use an
exchange rate that approximates the actual exchange rate on the date of the
transaction. For example, the average exchange rate of a week or a month may be
used for all transactions in each kind of foreign currency arising in such week
or month. If the exchange rate fluctuates greatly the enterprises must not use
the average exchange rate for the accounting work in the accounting week or
month involved.
Reporting at the balance sheet date
10. On the balance sheet date:
a/ Monetary items of foreign currency origin
must be reported at the closing exchange rate;
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c/ Non-monetary items determined according to
the reasonable value in foreign currencies must be reported at the exchange
rate on the date of determination of the reasonable value.
11. The book value of an item will be determined
in accordance with the relevant accounting standards. For example, inventories
will be determined according to their original prices, fixed assets according
to their historical costs even if their book values has been determined on the
basis of the original prices, historical costs or reasonable values, the
determined book values of items of foreign currency origin will then be
reported in the accounting currency in accordance with the provisions of this
standard.
Recognition of the exchange rate difference
12. The exchange rate difference that arises
upon the settlement of monetary items of foreign currency origin or as a result
of the reporting on monetary items of foreign currency origin by an enterprise
using exchange rates different from the exchange rate initially recognized or
already reported in the previous financial statements, shall be handled as
follows:
a/ At the construction investment stage to form
fixed assets of newly established enterprises, the exchange rate difference
arising upon settlement of monetary items of foreign currency origin for making
construction investment and the exchange rate difference arising upon
re-valuation of monetary items of foreign currency origin at the end of the
fiscal year will be reflected accumulatively and separately on the balance
sheets.
When completely constructed fixed assets are put
into use, the exchange rate arising at the construction investment stage will
be amortized into income or production and business costs over the maximum
period of five years.
b/ At the stage of production and business,
including the construction investment to form fixed assets of the operating
enterprises, the exchange rate difference arising upon settlement of monetary
items of foreign currency origin and re-valuation of currency of foreign
currency origin at the end of the fiscal year shall be recognized as income or
costs in the fiscal year, except for the exchange rate difference prescribed in
paragraphs 12c, 14 and 16.
c/ For enterprises using financial instruments
for exchange rate risk reserve, all loans and liabilities of foreign currency
origin shall be accounted according to the actual exchange rate at the time
they occur. Enterprises must not re-valuate loans and liabilities of foreign
currency origin for which they have used financial instruments for exchange
rate risk reserve.
13. The arising exchange rate difference shall
be recognized when the exchange rate changes between the transaction date and
the date of settlement for all monetary items of foreign currency origin. When
transactions occur and are settled in the same accounting period, exchange rate
differences will be accounted in such period. If transactions are settled in
subsequent accounting periods, exchange rate differences will be calculated on
the basis of the change in the foreign exchange rate in each period till the
period during which such transactions are settled.
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14. Exchange rate differences arising from
monetary units of foreign exchange origin, which, in nature, belong to the
reporting enterprises’ portion of net investment in foreign-based
establishments shall be classified as owners’ equity in the enterprises’
financial statements till such investment is liquidated. At that point of time,
all these exchange rate differences will be accounted as income or cost in
accordance with paragraph 30.
15. An enterprise may have monetary items
receivable from or payable to a foreign-based establishment. An item the
settlement of which is not determined yet or is unlikely in an anticipated
duration in future will, in nature, result in an increase or decrease in the
enterprises’ net investment in such foreign-based establishment. These monetary
items may include long-term receivables or loans but not commercial receivables
and commercial payables.
16. Exchange rate differences arising from liabilities
of foreign currency origin, which are accounted as an amount for restricting
risks of the enterprise’s net investment in a foreign-based establishment, will
be classified as owners’ equity on the enterprise’s financial statements till
the net investment is liquidated. At that point of time, these exchange rate
differences will be accounted as income or cost in accordance with paragraph 30.
THE FINANCIAL STATEMENTS OF OVERSEAS ACTIVITIES
Classification of overseas activities
17. The method of conversion of the financial
statements of overseas activities will depend on their financial and
operational dependence on the reporting enterprises. For this purpose, overseas
activities shall be classified into two types: "Overseas activities
inseparable from the operations of the reporting enterprises" and
"foreign-based establishments."
18. Overseas activities inseparable from the
operation of the reporting enterprises shall conduct their business operations
as a component of the reporting enterprises. For example, the foreign-based
enterprises sell imported goods and transfer the proceeds therefrom to the
reporting enterprises. In this case, any change in the rate of exchange between
the reporting currency and the currency of the foreign country where activities
are carried out shall directly affect the cash flows from the reporting
enterprises’ operation. Therefore, changes in the exchange rate will affect
each specific monetary item of overseas activities more than the reporting
enterprise’s net investment in such activities will.
19. Foreign-based establishments are independent
business units, having the legal person status in the host countries and using
the currencies of the host countries as their accounting currencies. These
establishments may participate in foreign currency transactions, including
transactions in the reporting currency. Any change in the rate of exchange
between the reporting currency and the currency of the host country will only
slightly affect or not directly at present or in future cash flows from the
operations of the foreign-based establishments as well as of the reporting
enterprises. Changes in the exchange rate will affect the reporting
enterprises’ net investment more than specific monetary or non-monetary items
of foreign-based establishments.
20. Characteristics for identification of a
foreign-based establishment:
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b/ Transactions with the reporting enterprise
account for not a large proportion in overseas activities;
c/ Foreign-based activities are mainly
self-financed or financed with foreign loans more than from the reporting
enterprises;
d/ Costs of labor, materials and raw materials
and other components of products or services of overseas activities are paid
and settled more in the currencies of the host countries than in the currency
of the reporting enterprise;
e/ Revenues from overseas activities are mainly
in currency other than the currency of the reporting enterprise;
f/ Cash flows of the reporting enterprise are
separate from the daily operation of overseas activities and are not directly
affected by the operation of overseas activities.
The reasonable classification of each overseas
activity may be based on the above-said characteristics. In some cases, the
classification of an activity carried out abroad as a foreign-based
establishment or an overseas activity inseparable from the reporting enterprise
may be unclear, it is, therefore, necessary to evaluate such activity to ensure
reasonable classification thereof.
Overseas activities inseparable from the
operation of the reporting enterprises
21. The financial statements of overseas
activities inseparable from the operation of the reporting enterprises will be
converted under the provisions in paragraphs 7 to 16 as for operations of the
reporting enterprises.
22. Each item in the financial statements of
overseas activities will be converted like transactions of overseas activities
conducted by the reporting enterprises. The historical costs and depreciation
of fixed assets will be converted at the exchange rate on the date the assets
are purchased. If the assets are calculated according to their reasonable
values, the exchange rate on the date such reasonable values are determined
will be used. The value of inventories shall be converted at the exchange rate
of the time such value is determined. Recoverable amounts or realizable values
of an asset will be converted at the actual exchange rate at the time these
amounts are determined.
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Foreign-based establishments
24. When converting the financial statements of
foreign-based establishments for inclusion in the financial statements of the
reporting enterprises, the following provisions must be complied with:
a/ All assets and liabilities (including both
monetary and non-monetary items) of foreign-based establishments will be
converted at the closing exchange rate;
b/ Items of revenues, other incomes and costs of
foreign-based establishments shall be converted at the exchange rate on the
date of the transactions. If the reports of foreign-based establishments are
denominated in the currency of a hyper-inflationary economy, revenues, other
incomes and costs shall be converted at the closing exchange rate;
c/ All exchange rate differences arising upon
the conversion of the financial statements of foreign-based establishments for inclusion
in the financial statements of the reporting enterprises must be classified as
owners’ equity of the reporting enterprises till such net incomes are
liquidated.
25. Where the average exchange rate approximates
the actual one, it will be used for converting the items of revenues, other
incomes and costs of foreign-based establishments.
26. For cases where exchange rate differences
arise upon the conversion of the financial statements of foreign-based
establishments:
a/ Conversion of the items of revenues, other
incomes and costs at the exchange rate on the date of the transaction; assets
and liabilities at the closing exchange rate;
b/ Conversion of net investments at the
beginning of a period in foreign-based establishments at an exchange rate other
than the exchange rate already used in the previous period.
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These exchange rate differences shall not be
recognized as income or cost in the period. They often exert little or indirect
impact on cash flows from present and future activities of foreign-based
establishments as well as of reporting enterprises. When a foreign-based
establishment is consolidated, which, however, does not result in entire
ownership, the accumulated exchange rate difference arising from the conversion
and associated with the minority shareholders’ investments in the foreign-based
establishments must be amortized and reported as part of ownership of minority
shareholders at the foreign-based establishments in the consolidated balance
sheet.
27. All the values of commercial advantages
arising from the purchase of foreign-based establishments and all adjustments
of the reasonable value of the book value of assets and liabilities arising
from the process of purchasing foreign-based establishments will be handled
like:
a/ Assets and liabilities of foreign-based
establishments will be converted at the closing exchange rate as prescribed in
paragraph 23.
b/ Assets and liabilities of the reporting enterprises
already denominated in the reporting foreign currency, or non-monetary items
will be reported at the exchange rate on the date of the transaction as
prescribed in paragraph 10 (b).
28. The inclusion of the financial statements of
foreign-based establishments in those of the reporting enterprises must comply
with the common inclusion procedures, such as exclusion of balances in a group
and a subsidiary’s operations with companies in the group (see the accounting
standard "Consolidated financial statements and accounting of capital
contributed in subsidiaries" and the accounting standard "Financial
information on capital contributions to joint ventures"). However, an
exchange rate difference arising in a monetary item in the group, whether
short-term or long-term, cannot be excluded into a corresponding item in
another balance in the group because this monetary item demonstrates the
commitment to convert one foreign currency into another foreign currency, thus
giving rise to a profit or loss to the reporting enterprise as a result of the
change in the foreign exchange rate. Therefore, in the consolidated financial
statements of the reporting enterprises, exchange rate differences shall be
accounted as income or as cost, or if they arise from the cases mentioned in
paragraphs 14 and 16, they shall be classified as owners’ equity till the net
investments are liquidated.
29. The financial statement dates of
foreign-based establishments must match the financial statement dates of the
reporting enterprises. Where financial statements cannot be made on the same
day, it is permitted to consolidate financial statements with dates differing
within three months. In this case, assets and liabilities of foreign-based
establishments shall be converted at the exchange rate on the date of the
balance sheets of foreign-based establishments. Where the exchange rate on the
date of the balance sheet of a foreign-based establishment differs greatly from
that on the date of the financial statement of the reporting enterprise, an
appropriate adjustment must be made from such date to the date of the balance
sheet of the reporting enterprise according to the accounting standard
"Consolidated financial statements and accounting of capital contributed
in subsidiaries" and the accounting standard "Financial information
on capital contributions to joint ventures."
Liquidation of foreign-based establishments
30 When liquidating foreign-based
establishments, the accumulated exchange rate differences already postponed
(under the provisions in paragraph 24.c) and related to such foreign-based
establishments will be recognized as income or as costs in the same period
during which profits or losses from the liquidation are recognized.
31. An enterprise may liquidate its investment
in a foreign-based establishment by selling, auctioning, repaying equities or
abandon all or part of its capital in the establishment concerned. Settlement
of dividends is a form of liquidation only when it is a recovery of investment.
For partial liquidation, only the accumulated exchange rate difference related
to owners’ equity can be calculated as profit or loss. The recording of a
decrease in the accounting value of a foreign-based establishment will not
constitute partial liquidation. In this case, no profit or loss regarding the
postponed exchange rate difference shall be recognized at the time a decrease
is recorded.
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32. When there is a new classification of
overseas activities, the provisions on conversion of the financial statements
of overseas activities will apply from the date of the new classification.
33. Overseas activities may be re-classified
upon the change in the degree of financial and operational dependence on the
reporting enterprises. When overseas activities constitute a part inseparable
from the operation of the reporting enterprises are classified as foreign-based
establishments, the exchange rate difference arising from the conversion of
non-monetary assets will be classified as owners’ equity on the date of the
re-classification. When a foreign-based establishment is classified as an
overseas activity inseparable from the operation of the reporting enterprises,
the converted values of non-monetary asset items on the date of the conversion
shall be regarded as their historical costs in the period during which the
change occurs and in subsequent periods. Postponed exchange rate differences
will not be recognized as income or cost till the liquidation of the
activities.
PRESENTATION OF THE FINANCIAL STATEMENTS
34. Enterprises must present in their financial
statements the following:
a/ The amount of exchange rate difference
already recognized in the net profit or loss in the period;
b/ The net exchange rate difference classified
as owners’ equity (according to paragraphs 12a and 14) and reflected as a
separate portion of the owners’ equity and the exchange rate differences at the
beginning and the end of the period must be presented.
35. When the reporting currency is different
from the currency of the country where the enterprises are operating, the
enterprises must clearly state the reason therefor, even when they change the
reporting currency.
36. Where the new classification of overseas
activities greatly affects the reporting enterprises, the enterprises must
present:
a/ The nature of the new classification;
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c/ Effects of the new classification on the
owners’ equity;
d/ Impacts on the net profit or loss of the
previous period, which affect the classification occurring at the beginning of
the nearest period.
37. The enterprises must present the selected
method (as prescribed in paragraph 27) for converting the adjustments of the
value of commercial advantages and the reasonable value arising in the purchase
of foreign-based establishments.
STANDARD
NO. 15
CONSTRUCTION CONTRACTS
(Promulgated and publicized together with the Finance Minister’s Decision
No. 165/2002/QD-BTC
of December 31, 2002)
GENERAL PROVISIONS
01. This standard aims to prescribe and guide the
principles and methods for accounting revenues and costs related to
construction contracts, including: contents of revenues and costs of
construction contracts; recognition of revenues and costs of construction
contracts to serve as basis for recording accounting books and compiling
financial statements.
02. This standard applies to the accounting of
construction contracts and compilation of financial statements by contractors.
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A construction contract is written contract for
the construction of an asset or combination of assets which are closely
interrelated or interdependent in terms of their designing, technology,
function or basic use purposes.
A fixed price construction contract is a
construction contract whereby the contractor agrees to a fixed price for the
whole contract or a fixed unit price on a finished product unit. In some cases
where prices rise high, such fixed price may change depending on contract
clauses;
A cost plus contract is a construction contract
whereby the contractor is reimbursed the actual costs allowed to be paid, plus
(+) an amount calculated in percentage (%) of these costs or a fixed amount of
charge.
04. A construction contract may be reached to
construct a single asset, such as: a bridge, a building, an oil pipeline or a
road or to construct a combination of assets which are closely interrelated or
interdependent in their designing, technology, function or basic use purposes,
such as: an oil refinery, complex of textile and garment plants.
05. In this standard, construction contracts
also include:
(a) Contracts for provision of services directly
relating to the construction of assets, such as: consultancy, designing and
survey contract; contract for project and architecture management services;
(b) Contracts for restoration or destruction of
assets and rehabilitation of environment after the asset destruction.
06. Construction contracts specified in this
standard are classified into fixed price construction contracts and cost plus
construction contracts. A number of construction contracts have the
characteristics of both fixed price construction contracts and cost plus
construction contracts. For instance, cost plus construction contracts contain
agreement on the maximum price. In this case, contractors need to consider all
the conditions prescribed in paragraphs 23 and 24 for recognizing construction
contract revenues and costs.
COMBINATION AND DIVISION OF CONSTRUCTION
CONTRACTS
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08. For a construction contract relating to the
construction of a number of assets, the construction of each asset shall be
considered a separate construction contract when it simultaneously meets the
following three (3) conditions:
(a) Designs and cost estimates are determined
separately for each asset and each asset can operate independently;
(b) Each asset may be separately negotiated with
each contractor, and the customer may accept or reject the contractual part
related to each asset;
(c) The cost and revenue of each asset can be
determined.
09. A group of contracts signed with one
customer or a number of customers shall be considered a construction contract
when they simultaneously meet the following three (3) conditions:
(a) These contracts are negotiated as a package
contract;
(b) These contracts are so closely interrelated
that they are in fact different components of a project with equivalent
estimated gross profits;
(c) These contracts are performed simultaneously
or in a continuous process.
10. One contract may include the construction of
one more asset at the request of customers or it may be amended to include the
construction of such asset. The construction of one more asset shall be only
considered a separate construction contract when:
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(b) The price of the contract for construction
of such asset is agreed upon, which is not related to the price of the initial
contract.
CONTENTS OF THE STANDARD
REVENUES OF CONSTRUCTION CONTRACTS
11. Revenues of a construction contract include:
(a) Initial revenue inscribed in the contract;
and
(b) Increase and decrease amounts in the contract
performance, bonuses and other payments, provided that these amounts are
capable of changing the revenue and can be reliably determined.
12. Revenue of a construction contract is
determined as the reasonable value of received or to be-received amounts. The
determination of the contractual revenue is affected by many uncertain factors
which depend on future events. The estimation must often be corrected upon the
occurrence of such events and the settlement of uncertain factors. As a result,
the contractual revenue may be increased or decreased in each specific period.
For example:
(a) Contractors and customers may agree upon
changes and requirements resulting in the increase or decrease of contractual
revenue in the next period as compared with the initially agreed contract;
(b) Revenue already agreed upon in the fixed
price contract may increase for the reason that prices rise high;
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(d) When the fixed price contract sets a fixed
price for a finished product unit, the contractual revenue shall increase or
decrease when the product volume increases or decreases.
13. Changes at customers’ requests in the scope
of works to be done under the contract. For example: changes in technical or
designing requirements of assets and other changes in the contract performance.
Such changes shall be accounted into the contractual revenue only when:
(a) It is highly probable that customers accept
such changes and revenues arising therefrom; and
(b) Revenue can be reliably determined.
14. Bonuses are supplementary amounts to be paid
to contractors if they perform the contracts according to or beyond the requirements.
For example, the contract anticipates to pay the contractor a bonus for early
contract fulfillment. Such bonus shall be accounted into the contract revenue
when:
(a) A number of specific standards inscribed in
the contract are surely attained or surpassed; and
(b) The bonus can be reliably determined.
15. Another payment received by the contractor
from the customer or another party to offset costs is not included in the
contractual price. For example: Delay caused by the customer; errors in technical
or designing specifications, and disputes over changes in the contract
performance. The determination of increased revenue from the above-said
payments depends on numerous uncertain factors and usually depends on the
results of many negotiations. Therefore, other payments shall only be accounted
into the contractual revenue when:
(a) It is agreed that the customer will accept
to make compensation;
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Costs of construction contracts
16. Costs of construction contracts include:
(a) Costs directly related to each specific
contract;
(b) General costs related to activities of the
contracts and can be distributed to each specific contract;
(c) Other costs which may be recovered from
customers under contractual clauses.
17. Costs directly related to each specific
contract include:
(a) Construction site labor costs, including
cost for project supervision;
(b) Costs of raw materials and materials,
including project equipment;
(c) Depreciation of machinery, equipment and
other fixed assets used for the contract performance;
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(e) Rent for workshops, machinery and equipment
for the contract performance;
(f) Expenses for designing and technical
assistance directly related to the contract;
(g) Estimated expenses for project repair and
maintenance;
(h) Other directly related costs.
Costs directly related to each contract shall
decrease when there exist other incomes not included in the contractual
revenue. For example: proceeds from the sale of superfluous raw materials and
materials, liquidation of construction machines and equipment upon the contract
conclusion.
18. General costs related to the activities of
construction contracts and can be allocated to each specific contract, include:
(a) Insurance premiums;
(b) Costs for designing and technical assistance
not directly related to a specific contract;
(c) General management costs in construction.
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19. Other costs which may be retrieved from
customers under contract clauses such as ground clearance cost, implementation
cost that customers must reimburse to the contractors as provided for in the
contract.
20. Costs which are not related to activities of
contracts or cannot be allocated to construction contracts shall not be
accounted into construction contract costs. These costs shall include:
(a) General administrative management costs, or
research and development costs which must not be paid by customers to
contractors as stated;
(b) Selling costs;
(c) Depreciation of machinery, equipment and
other fixed assets not used for construction contracts.
21. Contract costs include costs related to
contract throughout the period from the contract signing to the contract
conclusion. Costs directly related to contract arising in the course of
contract negotiation shall also be considered part of the contract costs if
they can be separately identified, reliably estimated and it is highly probable
that the contract will be signed. If costs arising in the course of contract
negotiation have already been recognized as production and business costs in
the period when they arise, they shall no longer be considered the construction
contract costs when such contract is signed in the next period.
RECOGNIZATION OF CONTRACT REVENUES AND COSTS
22. Construction contract revenues and costs are
recognized in the following two cases:
(a) Where a construction contract stipulates
that the contractor is allowed to make payments according to the set schedule,
and when the construction contract performance result is reliably estimated,
the revenues and costs related to the contract shall be recognized by reference
to the completed volume determined by the contractor on the date of compiling
financial statement, regardless of whether invoices for payments according to
the set schedule have been billed or not and how much money is inscribed on
invoices.
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23. For fixed price construction contracts, the
contract results shall be reliably estimated when the following four (4)
conditions are simultaneously met:
(a) Total contract revenue can be reliably
calculated;
(b) Enterprises can get economic benefits from
the contract;
(c) Costs for completing the contract and the
work already completed at the time of compiling financial statements can be
reliably calculated;
(d) Costs related to the contract can be clearly
identified and reliably calculated so that actual total contract cost can be
compared with the total cost estimates.
24. For cost plus construction contracts, the
contractual results shall be reliably estimated when the following two
conditions are simultaneously met:
(a) Enterprises can get economic benefits from
the contract;
(b) Costs related to the contract can be clearly
identified and reliably estimated regardless of whether they are reimbursed or
not.
25. The method of recognizing revenues and costs
according to the completed contractual work volume is called the completion
percentage method. By this method, revenues shall be determined to match
arising costs of the completed work volume reflected in the business operation
result report.
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27. A contractor may pay for the costs related
to the formulation of a contract. These costs shall be recognized as advances
if they can be reimbursed. These costs reflect money amounts to be paid by
customers and classified as uncompleted construction projects.
28. Construction contract performance results
shall only be reliably determined when the enterprises can receive economic
benefits from the contracts. In cases where exist doubts about irrecoverability
of certain amounts already counted into the contractual revenues and inscribed
in the business result reports, such irrecoverable amounts must be recognized
as costs.
29. Enterprises can only make reliable estimates
of construction contract revenues when reaching agreement in contracts upon the
following:
(a) Legal liability of each party for the
constructed assets;
(b) Conditions for change of contract value;
(c) Payment mode and time limit.
Enterprises must regularly review and, when
necessary, readjust the estimates of contractual revenues and costs in the
course of contract performance.
30. Completed work volumes of contracts to serve
as basis for determining revenues may be determined by different methods.
Enterprises should use appropriate calculation methods to determine the
completed work volume. Depending on the nature of construction contracts,
enterprises shall select to apply one of the following three (3) methods to
determine completed work volumes:
(a) Percentage (%) of costs of the work volume
completed at a certain time on the total estimated costs of the contract;
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(c) Percentage (%) of the completed construction
and installation volume on the total construction and installation volume which
must be completed under the contract.
The work-in-progress payments and advances
received from the customers usually do not reflect the completed work volume.
31. When the completed work volume is determined
by method of percentage (%) between costs of the work volume completed at a
certain time and the total estimated costs of the contract, the costs related
to the completed work volume shall be accounted into costs until that time.
Costs not counted into the contract’s completed work volume may be:
(a) Costs of the construction contract related
to future activities of the contract, such as: costs of raw materials and
materials already transported to the construction site or spared for use in the
contract but not yet installed or used in the course of contract performance,
except for cases where such materials are exclusively manufactured for the
contract;
(b) Advances to sub-contractors before the
sub-contracted works are completed.
32. When the construction contract performance
result cannot be reliably estimated:
(a) Revenue shall only be recognized to match
the already arising contract costs, the reimbursement thereof is relatively
sure;
(b) Contract costs shall only be recognized as
in-period costs when they have already arisen.
33. In the initial stage of a construction
contract, cases where contract performance results cannot be reliably estimated
may often occur. In cases where enterprises can recover already paid contract
costs, the contract costs shall only be recognized to the extent that the paid
costs can be recovered. When contract performance results cannot be reliably
estimated, no profit amount shall be recognized, even though the total costs
for contract performance may exceed the total contract revenues.
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(a) There are not enough legal conditions for
continuing the contract performance;
(b) The continued contract performance depends
on results of the settlement of petitions or opinions by competent agencies;
(c) The contract involves assets, which are
likely to be requisitioned or confiscated;
(d) Contracts where the customers cannot perform
their obligations;
(e) Contracts where the contractors cannot
fulfill or perform their obligations inscribed therein.
35. When uncertain factors related to the
reliable estimation of contract performance results are eliminated, revenues
and costs related to construction contracts shall be recognized to match the
completed work volume.
CHANGES IN ESTIMATIONS
36. The completion percentage (%) method shall
be based on accumulation from the construction commencement to the end of each
accounting period in respect of estimates of construction contract revenues and
costs. Effect of each change in the estimation of contract revenues or costs,
or effect of each change in the estimation of contract performance results
shall be accounted as an accounting estimation change. Changed estimates shall
be used in determining revenues and costs recognized in the business result
report in the period when such changes occur or in subsequent periods.
PRESENTATION OF FINANCIAL STATEMENTS
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(a) Method for determining revenues recognized
in the period and method for determining the completed work volume of a
construction contract;
(b) Construction contract revenues recognized in
the reporting period;
(c) Total accumulated construction contract
revenue recognized up to the reporting time;
(d) Payables to customers;
(e) Receivables from customers;
For contractors receiving work-in-progress
payments as provided for in construction contracts (except for cases specified
in Paragraph 22a), the following norms shall also be reported:
(f) Receivables according to scheduled progress;
(g) Payables according to scheduled progress.
38. Payables to customers are amounts received
by contractors before corresponding work of the contract is performed.
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40. Receivables according to the scheduled
progress is the difference between the total accumulated revenues of the
construction contract recognized up to the reporting time, which is larger than
the accumulated amount inscribed in invoices of payments according to the
scheduled progress of the contract.
This norm applies to on-going construction
contracts whereby accumulated revenues already recognized are larger than
accumulated amounts inscribed in invoices of progress payments up to the
reporting time.
41. Payables according to the scheduled progress
is the difference between the total accumulated revenues of the construction
contract recognized up to the reporting time, which is smaller than the
accumulated amount inscribed in invoices of payments according to the scheduled
progress of the contract.
This norm applies to on-going construction
contracts whereby accumulated amounts inscribed in invoices of progress
payments exceed accumulated revenues recognized up to the reporting time.
STANDARD
NO. 16
BORROWING COSTS
(Promulgated and publicized together with the Finance Minister’s Decision
No. 165/2002/QD-BTC of December 31, 2002)
GENERAL PROVISIONS
01. This standard aims to prescribe and guide
the principles and methods for accounting borrowing costs, including:
recognition of borrowing costs into production and/or business costs in the
period; capitalization of borrowing costs when these costs directly relate to
the construction investment or production of uncompleted assets which serve as
basis for recording accounting books and compiling financial statements
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03. The terms in this standard shall be
construed as follows:
Borrowing costs are loan interest and other
costs incurred in direct relation to borrowings of an enterprise.
Uncompleted assets are assets in the
construction investment process and assets in the production process, which
need a duration long enough (over 12 months) to be put to use according to the
set purposes or to sale.
04. Borrowing costs include:
(a) Interests on short-term and long-term
borrowings, including borrowing interest on overdraft amounts;
(b) Amortization of discounts or premiums
related to borrowings through bond issuance;
(c) Amortization of ancillary costs incurred in
relation to the arrangement of borrowing procedures;
(d) Financial costs of financial leasing assets.
05. For example: Uncompleted assets are those being
in the construction investment process, which are either unfinished or finished
but not yet put into production or use; unfinished products being in the
production process of production lines with a production cycle of over 12
months.
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Recognition of borrowing costs
06. Borrowing costs should be recognized into
production or business costs in the period in which they are incurred, unless
they are capitalized according to provisions in paragraph 07.
07. Borrowing costs directly related to the
construction investment or production of uncompleted assets shall be accounted
into the value of such assets (capitalized) when the conditions prescribed in
this standard are fully met.
08. Borrowing costs directly related to the
construction investment or production of uncompleted assets shall be accounted
into the value of such assets. Borrowing costs shall be capitalized when it is
highly probable that enterprises can get future economic benefits from the use
of such assets and the costs can be reliably determined.
Determination of borrowing costs to be
capitalized
09. In cases where a particular borrowing is
used only for the purpose of construction investment or production of an
uncompleted asset, the borrowing cost fully eligible for capitalization for
such uncompleted asset shall be determined as borrowing cost actually arising
from borrowings minus (-) incomes earned from temporary investments of such
borrowings.
10. Incomes from temporary investments of
particular borrowings shall, pending the use thereof for the purpose of
obtaining uncompleted assets, be offset against borrowing costs incurred upon
the capitalization.
11. In case of joint capital borrowings, which
are used for the purpose of investment in construction or production of an
uncompleted asset, the borrowing costs eligible for capitalization in each
accounting period shall be determined according to the capitalization rate for
weighted average accumulated costs incurred to the investment in construction
or production of such asset. The capitalization rate shall be calculated
according to the weighted average interest rate applicable to the enterprise’s
borrowings unrepaid in the period, except for particular borrowings for purpose
of obtaining an uncompleted asset. The amount of borrowing costs capitalized
during a period must not exceed the amount of borrowing costs arising during
that period.
12. If any discount or premium arises upon the
issuance of bonds, the borrowing interest shall be readjusted by amortizing the
value of such discount or premium and readjusting capitalization rate in an
appropriate manner. The amortization of the discount or premium may be effected
by the actual interest rate method or straight line method. Borrowing interests
and amortized discounts or premiums capitalized in each period must not exceed
the actual borrowing interest amount and amortized discount or premium amount
in that period.
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13. The capitalization of borrowing costs into
the value of an uncompleted asset shall commence when the following conditions
are simultaneously satisfied:
(a) Expenses for investment in construction or
production of the uncompleted asset start to arise;
(b) Borrowing costs are arising;
(c) Activities that are necessary to prepare the
uncompleted asset for its intended use or sale are being conducted.
14. Costs of the investment in construction or
production of an uncompleted asset include costs which must be paid in cash,
transfer of other assets or the acceptance of interest-bearing liabilities,
excluding subsidies or supports related to the asset.
15. Activities necessary to prepare the asset
for its intended use or sale include the activities of construction,
production, technical and general management prior to the commencement of
construction or production, such as the activities related to the application
for permits prior to the commencement of construction or production. However,
such activities do not cover the holding of an asset when no construction or
production that changes the asset’s state is taking place. For example,
borrowing costs related to the purchase of a land plot requiring site
preparation activities shall be capitalized in the period during which
activities of preparing such site are conducted. However, borrowing costs
incurred while such land plot is purchased for the purpose of holding without
construction activities related to such land plot, shall not be capitalized.
Temporary cessation of capitalization
16. The capitalization of borrowing costs shall
be temporarily ceased in periods during which the investment in construction or
production of uncompleted assets is interrupted, except for cases where such
interruption is necessary.
17. The capitalization of borrowing costs shall
be temporarily suspended when the investment in construction or production of
uncompleted assets is abnormally interrupted. At that time, incurred borrowing
costs shall be recognized as in-period production or business costs until the
investment in construction or production of uncompleted assets resume.
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18. The capitalization of borrowing costs shall
terminate when the major activities necessary to prepare the uncompleted asset
for its intended use or sale are completed. Borrowing costs arising afterward
shall be recognized as in-period production or business costs.
19. An asset is ready for its intended use or
sale when its construction or production is complete even though general
management works might still continue. In cases where due to minor changes
(such as the asset decoration at the purchaser’s or user’s request) these
activities are not yet completed, the major activities are still considered
complete.
20. When the investment in construction of an
uncompleted asset is completed in parts and each completed part is capable of
being used while the construction investment continues for the other parts, the
capitalization of borrowing costs shall terminate when all major activities
necessary to prepare that part for its intended use or sale are completed.
21. For a trade quarter comprising many
buildings, each of which can be used separately, the capitalization shall
terminate for borrowed capital used for each particular completed work.
However, for the construction of an industrial plant involving many production
items which are carried out in sequence, the capitalization shall terminate
only when all production items are completed.
Presentation of financial statements
23. Enterprises must present in their financial
statements:
(a) Accounting policy applicable to borrowing
costs;
(b) Total amount of borrowing costs capitalized
in the period; and
(c) Capitalization rate used for determining
borrowing costs capitalized in the period.
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STANDARD
NO. 24
CASH FLOW STATEMENTS
(Promulgated and publicized together with the Finance Minister’s Decision
No. 165/2002/QD-BTC
of December 31, 2002)
GENERAL PROVISIONS
01. This standard aims to prescribe and guide
the principles and methods for compiling and presenting cash flow statements.
02. This standard applies to the compilation and
presentation of cash flow statements.
03. The cash flow statement is a constituent of
a financial statement, it provides information to help users assess changes in
net assets, financial structure, cash liquidity of assets, solvency and
capability of enterprises for creating cash flows in their operations. Cash
flow statements enhance the ability to objectively assess the business
operation situation of enterprises and the comparability among enterprises
because it can eliminate effects of the use of different accounting methods for
the same transactions and events
The cash flow statement is used in assessing and
forecasting the possibilities in terms of amount, timing and certainty of
future cash flows; it is also used in re-checking the previous assessments and
forecasts of cash flows, and examining the relationship between profitability
and net cash flow as well as impacts of price fluctuation.
04. The terms in this standard are construed as
follows:
Cash comprises cash in funds, cash on transfer
and demand deposits.
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Cash flows are inflows and outflows of cash and
cash equivalents, excluding internal transfers between cash and cash equivalent
amounts within enterprises.
Business activities are principal
revenue-earning activities of enterprises and activities other than investment
or financial ones.
Investment activities are activities of
procuring, constructing, liquidating, assigning or selling long-term assets and
other investments other than cash equivalents.
Financial activities are activities that result
in changes in size and structure of the owners’ equity and borrowed capital of
enterprises.
CONTENTS OF THE STANDARD
Presentation of cash flow statements
05. Enterprises shall have to present in-period
cash flows in their cash flow statements upon three types of activities:
business, investment and financial activities.
06. Enterprises may present their cash flows
from business, investment and financial activities in a manner which is most
appropriate to their business characteristics. The classification of and
reporting on cash flows by activities shall provide information which help
users assess impacts of those activities on the enterprises’ financial
positions and on cash and cash equivalent amounts generated by the enterprises
in the period. This information may also be used to evaluate the relationships
among the above-said activities.
07. A single transaction may involve cash flows
in different types of activities. For example, the repayment of a borrowing
including both the principal and interest, in which the interest belongs to
business activities and the principal belongs to financial activities.
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08. Cash flows arising from business activities
are those relating to principal revenue-earning activities of an enterprise,
and providing basic information to evaluate the enterprise’s capability to
generate cash from their business activities to repay debts, maintain
operation, pay dividends and make new investments without external financing
sources. Information on cash flows from business activities, when being used in
conjunction with other information, shall help users forecast cash flows from
future business activities. Principal cash flows from business activities
include:
(a) Cash receipts from the sale of goods and the
provision of services;
(b) Cash receipts from other revenue-earning
activities (royalties, fees, commissions and other revenues other than received
cash amounts determined being cash flows from investment and financial
activities);
(c) Cash payments to goods suppliers and service
providers;
(d) Cash payments to employees as wages and
bonuses, and those on behalf of employees such as insurance premiums,
allowances, etc.;
(e) Cash payments of loan interests;
(f) Cash payment of enterprise income tax;
(g) Cash receipts from tax reimbursements;
(h) Cash receipts from compensations or fines
paid by customers violating economic contracts;
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(j) Cash payments of fines or compensations
imposed on enterprises for their breaches of economic contracts.
09. Cash flows relating to the purchase and sale
of securities for commercial purposes shall be classified as cash flows from
business activities.
Cash flows from investment activities
10. Cash flows arising from investment
activities are those relating to the procurement, construction, assignment,
sale or liquidation of long-term assets and investments other than cash equivalents.
The principal cash flows from investment activities include:
(a) Cash payments to procure and/or construct
fixed assets and other long-term assets, including those relating to
development costs already capitalized as intangible fixed assets;
(b) Cash receipts from the liquidation,
assignment or sale of fixed assets and other long-term assets;
(c) Cash payments to provide loans to third
parties, other than loans of banks, credit institutions and financial
institutions; cash paid to acquire debt instruments of other units, other than
payments for those debt instruments considered to be cash equivalents and those
for commercial purposes;
(d) Cash receipts from the recovery of loans
provided to third parties, other than recovered loans of banks, credit institutions
and financial institutions; cash receipts from the re-sale of debt instruments
of other units, other than receipts from the sale of those instruments
considered to be cash equivalents and those for commercial purposes;
(e) Cash payments of investments in capital
contributions to other units, other than payments for the purchase of shares
for commercial purposes;
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(g) Cash receipts from loan interests, dividends
and earned profits.
Cash flows from financial activities
11. Cash flows arising from financial activities
are those relating to the change in size and structure of owners’ equity and
borrowed capital of enterprises. The principal cash flows from financial
activities include:
(a) Cash proceeds from the issuance of shares or
reception of capital contributed by owners;
(b) Cash repayments of contributed capital to
owners or for redemption of shares by the issuing enterprises;
(c) Cash receipts from short- or long-term
borrowings;
(d) Cash repayments of principals of borrowings;
(e) Cash repayments of financial leasing debts;
(f) Cash payments of dividends or profits to
owners or shareholders.
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12. For banks, credit institutions, financial
institutions and insurance enterprises, their arising cash flows bear distinct
characteristics. When making their cash flow statements, these organizations
shall have to base themselves on their operation natures and characteristics to
classify cash flows in an appropriate manner.
13. For banks, credit institutions and financial
institutions, the following cash flows shall be classified as cash flows from
business activities:
(a) Provided loan cash;
(b) Received loan cash;
(c) Cash receipts from capital mobilization (including
deposits or savings received from other organizations and/or individuals);
(d) Cash refunds of mobilized capital (including
repayments of deposits or savings of other organizations and/or individuals);
(e) Receipt of deposits from and repayment of
deposits to other financial and credit institutions;
(f) Deposits and receipt of deposits at other
financial and credit institutions;
(g) Receipts and payments of assorted service
charges and commissions;
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(i) Payment of interests on borrowings and/or
deposits;
(j) Profits or losses from the purchase and sale
of foreign currencies;
(k) Receipts or payments in the purchase and
sale of securities at securities-trading enterprises;
(l) Payments for the purchase of securities for
commercial purposes;
(m) Proceeds from the sale of securities for
commercial purposes;
(n) Recovery of bad debts already written off;
(o) Other receipts from business activities;
(p) Other payments for business activities.
14. For insurance enterprises, received
insurance premiums and paid insurance indemnities as well as receipts and
payments related to clauses of insurance policies shall all be classified as
cash flows from business activities.
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METHODS OF MAKING CASH FLOW STATEMENTS
Cash flows from business activities
16. Enterprises shall have to report their cash
flows from business activities by one of the following two methods:
(a) The direct method: Under this method, the
norms indicating cash inflows and cash outflows are presented on statements and
determined by one of the following two ways:
- Direct analysis and synthesis of cash receipts
and payments upon each receipt or payment item according to the accounting
records of enterprises.
- Readjustment of revenues, cost of goods sold
and other items in the business result report, for:
+ Changes in the period in inventories, and
receivables and payables from business activities;
+ Other non-cash items;
+ Cash flows relating to investment and
financial activities.
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- Non-cash revenues and costs, such as
depreciation of fixed assets, reserves, etc.;
- Gains and losses of unrealized exchange rate
difference;
- Paid enterprise income tax amounts;
- Changes in the period in inventories, and
receivables and payables from business activities (other than income tax and
other payables after enterprise income tax);
- Profits or losses from investment activities.
Cash flows from investment and financial activities
17. Enterprises shall have to report separately
cash inflows and cash outflows from investment and financial activities, except
for those cash flows which are reported on a net basis and mentioned in
paragraphs 18 and 19 of this standard.
Reporting on cash flows on a net basis
18. Cash flows arising from the following
business, investment or financial activities shall be reported on a net basis:
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- Rentals received or paid on behalf of asset owners
and those returned to them;
- Investment funds held for customers;
- Acceptance and repayment of demand deposits by
banks, amounts transferred or paid via banks.
(b) Cash receipts and payments for items of
which the turnover is quick and the maturities are short:
- Purchase and sale of foreign currencies;
- Purchase and sale of investments;
- Other borrowings and loans of a short-term of
3 months or less.
19. Cash flows arising from the following
activities of banks, credit institutions and financial institutions shall be
reported on a net basis:
(a) Acceptance and repayment of time deposits
with fixed maturity dates;
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(c) Provision of loans to customers and repayment
of those loans by customers.
Foreign currency-related cash flows
20. Cash flows arising from foreign-currency
transactions must be converted into the accounting currency at the foreign
exchange rates at the time such transactions arise. Currencies in cash flow
statements of institutions operating overseas must be converted into the
accounting currency of the parent companies at the actual exchange rate of the
cash flow statement date.
21. Unrealized exchange rate difference arising
from the changes in exchange rates for converting foreign currencies into the
accounting currency are not cash flows. However, the exchange rate difference
due to the conversion of cash and cash equivalents currently deposited in
foreign currencies must be separately presented on cash flow statements in
order to compare cash and cash equivalents at the beginning and the end of the
reporting period.
Cash flows relating to received interests,
dividends and profits
22. For enterprises (other than banks, credit
institutions and financial institutions), cash flows relating to already paid
loan interests shall be classified as cash flows from business activities. Cash
flows relating to received loan interests, dividends and profits shall be
classified as cash flows from investment activities. Cash flows relating to
already paid dividends and profits shall be classified as cash flows from
financial activities. These cash flows must be presented as separate norms
suitable to each type of activities on cash flow statements.
23. For banks, credit institutions and financial
institutions, the already paid or received interests shall be classified as
cash flows from business activities, other than received interests definitely
identified to be cash flows from investment activities. The received dividends
and profits shall be classified as cash flows from investment activities. The
paid dividends and profits shall be classified as cash flows from financial
activities.
24. The total amount of loan interest paid in
the period must be presented in the cash flow statement whether it has been
recognized as a cost in the period or capitalized in accordance with accounting
standard No. 16 "Borrowing costs."
Cash flows relating to enterprise income tax
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Cash flows relating to the acquisition and liquidation
of subsidiary companies or other business units
26. Cash flows arising from the acquisition and
liquidation of subsidiary companies or other business units shall be classified
as cash flows from investment activities and presented as separate norms on
cash flow statements.
27. The total amount of payments for and/or
receipts from the acquisition and liquidation of subsidiary companies or other
business units shall be presented in cash flow statements in net cash and cash
equivalents paid for or received from the acquisition and liquidation.
28. Enterprises shall have to synthetically
present in their financial statement explanations the following information on
both the acquisition and liquidation of subsidiary companies or other business
units in the period:
(a) Total purchase or liquidation value;
(b) Value portion of the purchase or liquidation
paid in cash and cash equivalents;
(c) Cash and cash equivalent amounts actually
available at subsidiary companies or other business units acquitisioned or
liquidated;
(d) Value portion of assets and liabilities
other than cash and cash equivalents at subsidiary companies or other business
units acquitisioned or liquidated in the period. Value of such assets must be
synthesized upon each type of asset.
Non-cash transactions
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30. Many investment and financial activities do
not have a direct impact on current cash flows although they do affect the
asset and capital source structure of enterprises. Therefore, they shall not be
presented in cash flow statements but in financial statement explanations. For
example:
(a) The purchase of assets by accepting related
liabilities directly or through financial leasing operation;
(b) The acquisition of an enterprise by means of
share issuance;
(c) The conversion of debts into owners’ equity.
Components of cash and cash equivalents
31. Enterprises shall have to present in their
cash flow statements the norms of cash and cash equivalents at the beginning
and the end of the period, effects of changes in foreign exchange rates for
converting the currently held cash and cash equivalents in foreign currencies
for comparison of the data in cash flow statements with the corresponding items
on the balance sheets.
Other explanations
32. Enterprises shall have to present the value
of and reasons for large cash and cash equivalent amounts that they have held
and not been used due to limitations prescribed by law or other commitments
which must be fulfilled by enterprises.
33. There are many circumstances in which cash
and cash equivalent balances held by enterprises are not available for use for
business activities. For example: Cash amounts accepted as deposits or into
escrow accounts; special-use funds; project funding, etc.-
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THE MINISTRY OF FINANCE
VICE MINISTER
Tran Van Ta