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MINISTRY OF
FINANCE
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SOCIALIST
REPUBLIC OF VIET NAM
Independence - Freedom – Happiness
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No.
21/2006/TT-BTC
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Hanoi, March
20, 2006
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CIRCULAR
GUIDING THE IMPLEMENTATION OF FOUR ACCOUNTING STANDARDS
PROMULGATED TOGETHER WITH DECISION NO. 100/2005/QD-BTC DATED DECEMBER 28, 2005
OF THE MINISTER OF FINANCE
Pursuant to the Decision No. 100/2005/QD-BTC
dated December 28, 2005 of the Minister of Finance on the issuance and
publication of six Vietnamese standards on accounting (batch 5);
The Ministry of Finance guides the
implementation of three accounting standards (batch 5) applicable nationwide to
enterprises of all industries and economic sectors. Standard 19 “Insurance
contract" will be guided later.
I/ GUIDANCE OF THE
IMPLEMENTATION OF ACCOUNTING STANDARD “BUSINESS CONSOLIDATION”
A- GENERAL PROVISIONS
1/ Types of business
consolidation
- Business consolidation is done as a method of
forming one or many business activities that can be performed in many forms,
such as:
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+ An enterprise purchases all net assets of
another enterprise;
+ An enterprise assumes the liabilities of
another enterprise;
+ An enterprise purchases some of the net assets
of another enterprise.
- The payment of the trading during the business
consolidation shall be conducted in the form of issuance of quality instrument,
cash or cash equivalent payment, transfer of other assets or a combination
thereof. The transaction may be between the shareholders of the consolidating
enterprises or between one enterprise and the shareholders of another
enterprise. The business consolidation may involve the establishment of a new
enterprise to control the consolidating enterprises, control the transferred
net assets or restructure one or more of the consolidating enterprises.
- A business consolidation may result in a
parent-subsidiary relationship in which the acquirer is the parent company and
the acquired is the subsidiary company. The consolidation may not result in a
parent-subsidiary relationship, such as the business consolidation related to
the purchase of net assets, including the goodwill (if any) of another
enterprise which are not the purchase of shares of such enterprise.
2/ Accounting method of
business consolidation
All business consolidations shall be accounted
for using the purchase method.
The purchase method is comprised of 3 steps:
Step 1: Indentify the acquirer;
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Step 3: At the acquisition date, the acquirer
shall allocate the cost of business consolidation to the acquired assets,
liabilities and assumed contingent liabilities.
Step 1: Indentify the acquirer
All business consolidations shall identify the
acquirer. The acquirer is a consolidating enterprise that obtains control over
other consolidating enterprises or consolidating business activities. The
identification of the acquirer shall comply with the regulations from paragraph
17 to 23 of accounting standard 11 – Business consolidation.
Step 2: Determine the cost of the business
consolidation
The acquirer shall determine the cost of a
business consolidation including: the aggregate of the fair values, at the date
of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the acquirer in exchange for control of the acquired plus
(+) any costs directly attributable to the business consolidation.
The acquirer shall determine the cost of the
business consolidation in accordance with the regulations from paragraph 24 to
35 of accounting standard 11 – Business consolidation in which the following
contents shall be noted:
1- The acquirer may transfer the following
assets in a business consolidation: cash, bonds, shares or other assets used in
business activities of the acquired. Except for cash payment, any payment by
other assets usually results in a difference between the fair value and the
book value of these assets.
- If the payment is made in the form of bonds
(the interest rates of bonds may differ from market rates), the premium or
discount (if any) must be included in the value of the bond and record the
increase or decrease of the value of the investment.
- If the
payment is made in the form of shares (the par value of shares is often
different from the market value):
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+ If there is evidence and other calculation method
proved that the price published at the exchange date is unreliable or if there
is no published price of the shares issued by the acquirer, the fair value of
the shares can be estimated according to the interest in the fair value of the
acquirer or the interest in the fair value of the acquired that was acquired by
the acquirer as long as it has clearer evidence.
- If the payment is made in the form of assets
used in business activities, even depreciable assets, investment securities or other
investment assets (such as investment properties) must be determined according
to the fair value.
2- If the payment of all or any part of the cost
of a business consolidation is deferred, the fair value of that deferred part
shall be determined by discounting the amounts payable to their present value
at the date of exchange. In that case, the cost of the business consolidation
shall be added (+) the premium or be deducted (-) the discount likely to be
incurred in payment.
3- Costs directly attributable to the
consolidation, such as fees paid to auditors, legal consultants, price
verifiers and other consultants shall be included in the cost of the business
consolidation.
Step 4-: Do not include the following contents
in the cost of the business consolidation:
- Future losses or other costs expected to be
incurred as a result of a consolidation which is not treated as liabilities
incurred or assumed by the acquirer in exchange for control of the acquired;
- General administrative costs and other costs
that are not directly related to the business consolidation;
- Costs of agreement and issuance of financial
liabilities;
- Costs of issuance of equity instruments.
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Acquired identifiable assets and liabilities and
assumed contingent liabilities in a business consolidation shall be recorded
according to the fair value. The determination of fair value of each type of
assets, liabilities and contingent liabilities shall comply with the guidance
specified in paragraph A16 of Annex A Accounting standard 11 – business
consolidation.
1- If the business consolidation does not result
in a parent-subsidiary relationship (The acquirer purchases the entire net
assets of the acquired or the acquirer purchases all shares of the acquired and
the acquired disappears after the consolidation).
If the business consolidation does not result in
a parent-subsidiary relationship, the acquirer shall only prepare the financial
statement at the acquisition date, specifically for each form as follows:
1.1- After the consolidation, if only the
acquirer remains and the acquired disappears, all assets and liabilities of the
acquired are transferred to the acquirer and the acquired is dissolved (Ex:
Company A purchases all net assets of Company B, after the consolidation,
Company B dissolves and Company A remains with a reformed structure). Or after
consolidation, a number of net assets of the acquired are transferred to the
acquirer to form one or more business activities of the acquirer. The acquirer
shall recognize identifiable assets, liabilities and contingent liabilities at
their fair value at the acquisition date on the separate financial statements.
The positive difference between the cost of business consolidation and the
equity of the acquirer in the net fair value of identifiable assets,
liabilities and assumed contingent liabilities is goodwill. This is then amortized
over its useful life in operating expenses of the acquirer (Company A) within
10 years.
If a negative goodwill arises because the cost
of a business consolidation is less than the equity of the acquirer in the net
fair value of identifiable assets, liabilities assumed contingent liabilities,
the buyer must review the determination of the fair value of the identifiable
assets, liabilities, contingent liabilities and the determination of the cost
of the business consolidation. After reviewing and adjusting, if the difference
still remains, the acquirer shall immediately recognize all remained
differences in the profit or loss after revaluation.
1.2- After the consolidation, if the
consolidating enterprises disappear and a new enterprise is established, all
assets and liabilities of consolidating enterprises are transferred to the new
enterprise (Ex: Company A and Company B is consolidated to establish Company C.
After the consolidation, both Company A and Company B are dissolved and Company
C has a new name. The business activities of Company C are a combination of the
activities of Company A and B). In this case, one of the consolidating
enterprise (Ex: Company A) is determined as the acquirer. At the acquisition
date, the acquirer recognizes identifiable assets, liabilities, contingent
liabilities and goodwill (if any) in the separate financial statements as case
(1.1).
2- If the business consolidation results in a
parent-subsidiary relationship, in which the acquirer is the parent company and
the acquirer is the subsidiary company (The acquirer purchases all shares of
the acquired and after consolidation, both companies still remain and operate
separately):
- After the consolidation, if both enterprises
operate separately but involve in common control, the parent-subsidiary
relationship are established. The enterprise that obtains control of the other
enterprise is the parent company (acquirer) and the controlled enterprise is
the subsidiary company (acquired). The parent company shall accounted for its
equity in the subsidiary as an investment in a subsidiary in the separate
financial statements and recognizes identifiable assets and liabilities
acquired and assumed contingent liabilities in the consolidated financial
statements at fair value. The difference between the cost of business
consolidation and the equity of the acquirer in the net fair value of
identifiable assets, liabilities and contingent liabilities is goodwill. This
appears the same as case (1.1) but in the consolidated financial statements of
the Group, not reflected in the separate financial statements.
- If the business consolidation results in a
parent-subsidiary relationship, the acquirer which is the parent company shall
not prepare separate financial statements and consolidated financial statements
at the acquisition date but shall prepare separate financial statements and
consolidated financial statements at the earliest time according to effective
regulations.
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1/ If the business
consolidation results in a parent-subsidiary relationship
1.1- Account for the cost of the business
consolidation of the acquirer
At the acquisition date, the acquirer shall
determine and reflect the cost of a business consolidation including: the
aggregate of the fair values, at the date of exchange, of assets given,
liabilities incurred or assumed, and equity instruments issued by the acquirer
in exchange for control of the acquired plus (+) any costs directly
attributable to the business consolidation. At the same time, the acquirer
which is also the parent company shall record its equity in the subsidiary
company as an investment in a subsidiary company.
- If the trading in
business consolidation is paid in cash or cash equivalents by the acquirer:
Debit 221 – Investment in subsidiaries
Credit 111, 112, 121...
- If the trading in
business consolidation is carried out by the share issuance of the acquirer, if
the issue price (according to fair value) of the shares at the date of the
exchange is greater than the par value of the share:
Dr 221 – Investment in subsidiaries (according
to fair value)
Cr 4111 – Contributed capital (according to face
value)
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- If the issue price
(according to fair value) of the shares at the date of the exchange is smaller
than the par value of the share, record:
Dr 221 – Investment in subsidiaries (at the fair
value)
Dr 4112 – Capital surplus (negative difference
between the fair value and the face value of the share).
Cr 4111 – Contributed capital (according to face
value)
- Stock floatation cost
actually induced will be recorded as follows:
Dr 4112 – Capital surplus
Cr 111, 112, etc.
- If the business
consolidation is carried out by exchange of assets between the acquirer and the
acquired:
+ When exchanging
fixed assets, the decrease in fixed assets shall be recorded as follows:
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Dr 214 – Depreciation of fixed assets
(depreciation value)
Cr 211 – Tangible fixed asset (cost).
At the same time the increase in other income
and investments in subsidiaries due to exchange of fixed assets shall be
recorded as follows:
Dr 221 – Investment in subsidiaries (Total
payment)
Cr 711 – Other expenses (fair value of the
exchanged fixed assets)
Cr 3331 – VAT payables (Account 33311) (if any).
+ When dispatching goods for exchange, the
following accounts shall be recorded as follows:
Dr 632 – Costs of goods sold
Cr 155, 156, etc.
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Debit 221- Investment in subsidiaries
Cr 511 - Revenues
Cr 333 – Taxes and other payables to the State
(33311) (if any).
- If the trading in
business consolidation is carried out by the bond issuance of the acquirer:
+ When paying by bonds at par value, the
following accounts shall be recorded:
Dr 221 – Investment in subsidiaries (at the fair
value)
Cr 343 – Bonds released (3431 – Par value of
bonds).
+ When paying by premium bonds, the following
accounts shall be recorded:
Dr 221 – Investment in subsidiaries (at the fair
value)
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Cr 3433- Bond premium (Premium amount).
+ When paying by discount bonds, the following
accounts shall be recorded:
Dr 221 – Investment in subsidiaries (at the fair
value)
Dr 3432 – Bonds discount (discount amount)
Cr 3431 – Par value of bonds (According to par
value of bonds)
- Costs directly
attributable to the consolidation, such as legal services, price appraisal,
etc, the following accounts shall be recorded by the acquirer:
Dr 221 – Investment in subsidiaries
Cr 111, 112, 331...
1.2- Account for the adjustments to the
cost of a business consolidation contingent on future events
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(1)- It is usually possible to estimate in a
reliable way the amount of such adjustment at the time of initially accounting
for the consolidation even though some uncertainty may exist. If the future
events do not occur or the estimate needs to be revised, the cost of the business
consolidation shall be adjusted accordingly.
(2)- When the business consolidation agreement
allows such adjustment, that adjustment is not included in the cost of
consolidation at the time of initially accounting if it either is not probable
or cannot be measured reliably. If that adjustment subsequently becomes
probable and can be measured reliably, the additional consideration shall be
treated as an adjustment to the cost of the consolidation.
- Depending on future
events according to the business consolidation agreement, when adjusting the
cost of business consolidation because the acquirer has to pay more cash or
shares to the acquired, the following accounts shall be recorded by the
acquirer:
Dr 4112 – Capital surplus (if the acquirer
issues more shares- record according to the positive difference between the
fair value and the face value of the share)
Dr 221 – Investment in subsidiaries (The
increase amount of the cost of business consolidation) (according to the fair
value of the share)
Cr 4111 – Contributed capital (according to face
value) (If the acquirer issues more shares – record according to the par value)
Cr 4112 – Capital surplus (if the acquirer
issues more shares- record according to the negative difference between the
fair value and the face value of the share)
Cr 111, 112, etc. (if the payment is made by
cash).
- When paying the
additional amount to the acquired by goods and products, the following accounts
shall be recorded by the acquirer:
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Cr 511 – Revenues (according to net of VAT)
Cr 333 – Taxes and other payables to the State
(33311).
At the same time, reflect the costs of products
and goods dispatched to the acquired as follows:
Dr 632 – Costs of goods sold
Cr 155, 156.
- When paying the
additional amount to the acquired by fixed assets, the following accounts shall
be recorded by the acquirer:
Dr 221 – Investment in subsidiaries (The
increase amount of the cost of business consolidation)
711 – Other income
Cr 333 – Taxes and other payables to the State
(33311).
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Dr 811 – Other expenses (residual value)
Dr 214 – Depreciation of fixed assets
(depreciation value)
Cr 211- Tangible fixed asset (cost).
- The decreasing
adjustments in the cost of business consolidation because the acquirer may
collect more cash or assets of the acquired shall be recorded by the acquirer
as follows:
Dr 111, 112, 152, 155, 156, 211...
Cr 221 – Investment in subsidiaries
(3) In case the acquirer is required to make a
subsequent payment to the acquired as compensation for a reduction in the value
of the assets given, equity instruments issued or liabilities incurred or
assumed by the acquirer in exchange for control of the acquired. (For example,
when the acquirer guarantees the market price of equity or debt instruments
issued as part of the cost of the business consolidation and when the acquirer
is required to issue additional equity or debt instruments to restore the
originally determined cost). In such cases, no increase in the cost of the
business consolidation is recognized. In case of equity instruments, the fair
value of the additional payment is offset by an equal reduction in the value
attributed to the instruments initially issued. In case of debt instruments,
the additional payment is regarded as a reduction in the premium or an increase
in the discount on the initial issuance.
Depending on future events according to the
business consolidation agreement, the following accounts shall be recorded by
the acquirer according to each case:
- If the acquirer has to
issue additional shares to restore the initial value of the shares to the
acquired due to the discount, the following accounts shall be recorded:
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Cr 4111 – Contributed capital
- If the acquirer has to
issue additional bonds to restore the initial value of the bonds to the
acquired due to the discount, the following accounts shall be recorded:
+ When reducing the bond premium, the following
accounts shall be recorded:
Dr 3433 - Bond premium
Cr 3431 – Par value of bonds
+ When increasing the bond discount, the
following accounts shall be recorded:
Dr 3432 – Bonds discount
Cr 3431 – Par value of bonds
+ If the additional payment to the acquired is
recorded as a decrease in bond premium or recorded as an increase in the bond
discount corresponding to the amount of bond issued, the following accounts
shall be recorded:
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Dr 3433 – Bonds premium (if recorded as a
decrease)
Cr 111, 112, etc.
2/ If the business
consolidation does not result in a parent-subsidiary relationship
2.1- General principles
- At the acquisition date,
the acquirer shall determine and reflect the cost of a business consolidation
similar to the case where the business consolidation results in a
parent-subsidiary relationship. At the same time, the acquirer shall record
purchased assets, liabilities and contingent liabilities at fair value at the
acquisition date in separate financial statements, including assets and
liabilities and contingent liabilities (if any) that are not yet recorded by
the acquired. The positive difference between the cost of business
consolidation and the equity of the acquirer in the net fair value of
identifiable assets, liabilities and contingent liabilities is goodwill. This
appears as an asset in the financial statements of the acquirer and is then
amortized in operating expenses of the acquirer within 10 years.
- If the cost of the
business consolidation is less than the equity of the acquirer in the net fair
value of identifiable assets, liabilities assumed contingent liabilities, the acquirer
must review the determination of the fair value of the identifiable assets,
liabilities, contingent liabilities (if any) and the determination of the cost
of the business consolidation. After reviewing and adjusting, if the difference
still remains, the acquirer shall immediately recognize the all the remained
differences in the profit or loss after revaluation.
2.2- Accounting method
- If the goodwill is
created on the acquisition date, the following accounts shall be recorded by
the acquirer according to each case:
+ If the trading in business consolidation is
paid in cash or cash equivalents by the acquirer:
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Dr 242 – Prepaid expenses (goodwill in details)
Cr 311, 331, 341, 342, etc. (according to fair
value of liabilities and assumed contingent liabilities)
Cr 111, 112, 121 (amounts of cash or cash
equivalents paid by the acquirer).
+ If the trading in business consolidation is
carried out by the bond issuance of the acquirer:
Dr 131, 138, 152, 153, 155, 156, 211, 213, 217,
etc (according to fair value of purchased assets)
Dr 242 – Prepaid expenses (goodwill in details)
Dr 4112 – Capital surplus (The fair value is
smaller than the face value) (if the issue price according to the fair value is
smaller than the face value of the share)
Cr 4111 – Contributed capital (according to face
value)
Cr 311, 315, 331 341, 342, etc. (according to
fair value of liabilities and assumed contingent liabilities)
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Stock floatation cost actually induced will be
recorded as follows:
Dr 4112 – Capital surplus
Cr 111, 112
- Periodically, the
acquirer amortizes goodwill in operating expenses as follows:
Dr 642 - General administration expenses
Cr 242 – Prepaid expenses (goodwill in details)
- If the negative goodwill
is created on the acquisition date, the following accounts shall be recorded by
the acquirer according to each case:
+ If the trading in business consolidation is
paid in cash or cash equivalents by the acquirer:
Dr 152, 153, 155, 156, 211, 212, 213, etc
(according to fair value of purchased assets)
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Cr 311, 315, 331 341, 342, etc. (according to
fair value of liabilities and assumed contingent liabilities)
Cr 111, 112, 121... (Amounts of cash or cash
equivalents paid by the acquirer).
Cr 711 – Other incomes (Record profit – if any
after reviewing the value of the identifiable assets, liabilities, contingent
liabilities and the cost of the business consolidation when a negative goodwill
arises)
+ If the trading in business consolidation is
carried out by the bond issuance of the acquirer:
Dr 111, 112, or
Dr 131, 138, 152, 153, 155, 156, 211, 212, 213,
217, etc (according to fair value of purchased assets)
Dr 4112 – Capital surplus (The fair value is
smaller than the face value) (if the issue price according to the fair value is
smaller than the face value of the share)
Dr 811 – Other expenses (Record losses – if any
after reviewing the value of the identifiable assets, liabilities, contingent
liabilities and the cost of the business consolidation when a negative goodwill
arises)
Cr 311, 331, 341 342, 342, etc. (according to
fair value of liabilities and assumed contingent liabilities)
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Cr 4112 – Capital surplus (The fair value is
greater than the face value) (if the issue price according to the fair value is
greater than the face value of the share)
Cr 711 – Other incomes (Record profit – if any
after reviewing the value of the identifiable assets, liabilities, contingent
liabilities and the cost of the business consolidation when a negative goodwill
arises)
Stock floatation cost actually induced will be
recorded as follows:
Dr 4112 – Capital surplus
Cr 111, 112.
- The trading in business
consolidation may be carried out by exchange of assets between the acquirer and
the acquired. These transactions shall be recorded in the same way as that
specified in Point 1 Section B Part I.
Example 1: Business consolidation involves
the acquisition of all net assets, which results in goodwill and not results in
a parent-subsidiary relationship:
On January 1, X1, Company P purchased all assets
and liabilities of Company S by issuing 10,000 shares of VND 10,000 par value
to Company S. The market value of this stock is 60,000 per share. Expenditure
incurred for valuation and audit related to the purchase of assets and
liabilities of Company S which Company P has to pay in cash is VND 40,000,000.
The cost of issuance of shares of Company P in cash is 25,000,000 VND. After
the acquisition, only Company P exists and Company S is dissolved.
In this case, the cost of the business
consolidation is determined as follows:
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VND 60,000 x
10,000 = VND 600,000,000
- Costs
directly related to the business consolidation
VND 40,000,000
Total cost of the business consolidation:
VND
640,000,000
The value of issued shares of Company P is
determined by their fair value minus (-) the cost of issuance of shares:
- Market value of 10,000
shares issued by Company P
VND 600,000,000
- Stock
floatation cost:
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Value of shares issued:
VND
575,000,000
As soon as the business consolidation cost is
determined (640 million), it must be allocated to identifiable assets, liabilities
and contingent liabilities (if any). Acquired assets and liabilities are
determined according to their fair value at the acquisition date. The positive
difference between the cost of business consolidation and the equity of the
acquirer in the net fair value of identifiable assets, liabilities and assumed
contingent liabilities is goodwill. This is then amortized in operating
expenses and recognized in income statements of the acquirer within 10 years.
Assuming that at December 31, X0, the Balance
Sheet of Company S is as follows:
Unit: VND
Items
Book value
Fair value
ASSET
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- Cash
20,000,000
20,000,000
- Account
receivable
25,000,000
25,000,000
- Inventory
65,000,000
...
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- Intangible
fixed assets (land use rights)
40,000,000
70,000,000
- Tangible
fixed asset
(Buildings,
machines, equipment)
400,000,000
350,000,000
- Accumulated
depreciation
(150,000,000)
...
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- Patent
(*)
80,000,000
Total assets
400,000,000
620,000,000
LIABILITIES
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100,000,000
110,000,000
OWNER’S EQUITY
- Contributed
capital
(VND
10,000 par value)
100,000,000
-
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50,000,000
-
- Retained
earnings
150,000,000
-
Total equity
400,000,000
-
Fair value of net assets
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510,000,000
Note: (*) The patent value
of the acquired has not been recognized as an intangible fixed asset, but upon acquisition,
because the acquirer determines that it satisfies the criteria prescribed in
accounting standard No. 04- Intangible fixed assets, it will be recognized as
an intangible fixed asset
In this case, at the
acquisition date (January 01, X0), Company P shall record the value of each
asset, each liability and the value of transferred shares as follows:
Dr 111,
112
20,000,000 (According to fair value)
Dr
131
25,000,000
-
Dr
152
75,000,000
-
Dr 2131 (land use
rights)
70,000,000
-
Dr 2133
(Patent)
80,000,000
-
Dr 211 (tangible fixed
assets)
350,000,000
-
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(=
640,000,000 VND - 510,000,000 VND)
Cr
311
110,000,000
Cr 4111
100,000,000
Cr 4112
475,000,000
Cr
111
65,000,000
Example 2: Business consolidation involves
the acquisition of all net assets, which results in negative goodwill and not
results in a parent-subsidiary relationship:
On January 1, X1, Company P purchased all assets
and liabilities of Company S by issuing 10,000 shares of 10,000D par value to
Company S. The market value of this stock is 42,000 per share. Expenditure
incurred for valuation and audit related to the purchase of assets and
liabilities of Company S which Company P has to pay in cash is VND 40,000,000.
The cost of issuance of shares of Company P in cash is 25,000,000 VND. After
the acquisition, only Company P exists and Company S is dissolved.
In this case, the cost of the business
consolidation is determined as follows:
- Market value of 10,000
shares issued by Company P
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- Costs directly related
to the business consolidation
VND 40,000,000
Total cost of the business consolidation:
VND
460,000,000
The value of issued shares of
Company P is determined by their fair value minus (-) the cost of issuance of
shares:
- Market value of 10,000
shares issued by Company P
VND 420,000,000
- Stock
floatation cost:
(VND 25,000,000)
...
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VND
395,000,000
The cost of business consolidation when
purchasing Company S's net assets is VND 460,000,000; The total fair value of Company
S's net assets is still VND 510,000,000 (the Company's Balance Sheet at
December 31, X0 is similar to Example 1).The difference of 510,000,000 -
460,000,000 = 50,000,000 VND shall be recorded as follows:
Company P shall review the fair value of assets
and liabilities of company S and carried out some adjustments as follows:
- Fair value of land use
rights is VND 63,000,000 (formerly VND 70,000,000) (decrease VND 7,000,000);
- Fair value of buildings,
machines and equipment is VND 315,000,000 (formerly VND 350,000,000) (decrease
VND 35,000,000);
- The fair value of other
assets and liabilities remains the same.
Total fair value of net assets of company S
after review and re-evaluation is decreased by VND 42,000,000 (7,000,000
+35,000,000), the difference of 50,000,000 – 42,000,000 = VND 8,000,000 is
recorded as profits within the period (Account 711).
In this case, at the acquisition date (January
01, X0), Company P shall record the value of each asset, each liability and the
value of transferred shares as follows:
Dr 111, 112
20,000,000 (according to the fair
value)
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Dr
152
75,000,000
Dr 2131 (land use rights)
63,000,000
-
Dr 2133 (Patents)
80,000,000
-
Dr 211 (intangible fixed
assets)
315,000,000
-
Cr 311
110,000,000
Cr 4111
100,000,000
Cr 4112
295,000,000
Cr
111
65,000,000
Cr
711
(468,000,000 - 460,000,000)
8,000,000
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1- The acquirer which is the parent company shall
not prepare consolidated financial statements at the acquisition date but shall
prepare consolidated financial statements at the earliest time according to
effective regulations.
2- The acquirer which is the parent company
shall comply with the principles on preparation and disclosure of consolidated
financial statements as specified in accounting standard 25 - Consolidated
Financial Statements and Accounting for Investments in Subsidiaries and the
Circular guiding the implementation of accounting standard 25. In order to
prepare the consolidated financial statements, the acquirer which is the parent
company shall comply with the following regulations:
2.1- At the acquisition date, the acquirer
(parent company) shall calculate, determine and record the following
adjustments in the consolidated accounting book:
a) Record the difference between fair value and
book value of identifiable assets and liabilities of the acquired (subsidiary)
at the acquisition date:
In order to recognize all acquired assets and
identifiable liabilities at the acquisition date according to fair value, the
parent company shall determine and record the difference between the fair value
and book value of identifiable assets and liabilities of the subsidiary at the
acquisition date.
The adjustments are as follows:
Increase assets (Positive difference between
fair value and book value of each acquired asset)
Decrease liabilities (Negative difference
between fair value and book value of each acquired liability)
Decrease assets (Negative difference between
fair value and book value of each acquired asset)
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Increase (or decrease) difference in asset
revaluation (The difference between fair value and book value of identifiable
assets and liabilities acquired from the subsidiary at the acquisition date)
b) Record book value of the investment by the
parent company (acquirer) in the subsidiary (acquired) and capital amount of
the parent company contributed in the owner’s equity of the subsidiary at the
acquisition date to exclude them when consolidating. At the same time determine
the amount of goodwill derived from business consolidation (if any) to record
in the consolidated financial statement. Goodwill is the difference between the
cost of business consolidation and the equity of the acquirer in net fair value
of identifiable assets, liabilities and contingent liabilities (if any), it
shall be adjusted as follows:
Decrease - Contributed capital
Decrease – Difference in asset revaluation
Decrease – Financial reserve fund
Decrease – Development investment fund
Decrease – Undistributed profits
Increase - Goodwill
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c) Determine benefits of minor shareholders in
the value of net assets of the subsidiary to record them in the consolidated
balance sheet. Benefits of minor shareholders in the value of net assets of the
subsidiary at the acquisition date is determined as a part of the value of net
assets according to fair value of the subsidiary respectively to benefits that
are not owned by the parent company attributable to the results of the business
consolidation.
The adjustments are as follows:
Decrease - Contributed capital
Decrease – Difference in asset revaluation
Decrease – Financial reserve fund
Decrease – Development investment fund
Decrease – Undistributed profits
...
Increase – Benefits of minor shareholders.
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2.2- In order to prepare the consolidated
financial statements, the acquirer shall follow, collect and fully store
information and documents on changes in financial situation and business
situation of the subsidiary from the date of business consolidation (date of
acquisition) to the consolidated financial statement preparation date.
2.3- When preparing the consolidated financial
statements, the adjustments determined by the acquirer shall comply with
changes in financial situation and business situation of the parent company and
the subsidiary from the date of business consolidation to the consolidated
financial statement preparation date according to accounting standard 25 -
Consolidated Financial Statements and Accounting for Investments in
Subsidiaries and the Circular guiding the implementation of accounting standard
25.
2.4- Income statements of the subsidiary shall
be included in the consolidated financial statements from the acquisition date.
Example 3: Acquire all shares, no goodwill
derived
On January 1, X1, Company P purchased all shares
outstanding of Company S at the price of VND 300,000,000, paid in cash. At the
acquisition date, the fair value of assets and liabilities of Company S is
equal to its book value. The data on balance sheets of Company P and Company S
as at December 31, X0 are as follows:
Unit: VND
Items
Balance
sheet of Company P
Balance
sheet of Company S
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- Cash
350,000,000
50,000,000
- Account
receivable
75,000,000
50,000,000
- Inventory
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60,000,000
- Intangible
fixed assets (land use rights)
175,000,000
40,000,000
- Tangible
fixed asset
(Buildings,
machines, equipment)
800,000,000
600,000,000
- Accumulated
depreciation
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(300,000,000)
Total assets
1,100,000,000
500,000,000
LIABILITIES
300,000,000
200,000,000
- Account
payable
100,000,000
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- Long-term
debts
200,000,000
100,000,000
OWNER’S EQUITY
800,000,000
300,000,000
- Contributed
capital
(VND 10,000 par value)
500,000,000
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- Retained
earnings
300,000,000
100,000,000
Total equity
1,100,000,000
500,000,000
* When purchasing all shares
of Company S on January 1, X1 and becoming the parent company, Company P shall
record the following contents on its accounting book:
Dr 221 – Investment in
subsidiaries 300,000,000 (Company S in details)
Cr
111,112
300,000,000
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Unit: VND
Items
Balance
sheet of Company P
(After acquiring shares of Company S)
Balance
sheet of Company S
ASSET
- Cash
50,000,000
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- Account
receivable
75,000,000
50,000,000
- Inventory
100,000,000
60,000,000
- Intangible
fixed assets (land use rights)
175,000,000
40,000,000
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800,000,000
600,000,000
- Accumulated
depreciation
(400,000,000)
(300,000,000)
- Investment
in subsidiaries
300,000,000
Total assets
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500,000,000
LIABILITIES
300,000,000
200,000,000
- Account
payable
100,000,000
100,000,000
- Long-term
debts
200,000,000
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OWNER’S EQUITY
800,000,000
300,000,000
- Contributed
capital (VND 10,000 par value)
500,000,000
200,000,000
- Retained
earnings
300,000,000
100,000,000
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1,100,000,000
500,000,000
* In order to prepare the consolidated
financial statement, at the acquisition date (January 01, X1), Company P shall
record the adjusting entry (on the consolidated accounting book) excluding the
book value of the investment by the parent company in the subsidiary and the
capital of the parent company in the equity of the subsidiary at acquisition
date as follows:
Adjusting entry:
Decrease - Contributed
capital (of subsidiary
S)
200,000,000
Decrease – Undistributed
profits (of subsidiary
S)
100,000,000
Decrease – Investment in
subsidiaries (of parent company
P)
300,000,000
Example 4: Acquire all
shares, goodwill derived
On January 1, X1, Company P
purchased all shares outstanding of Company S at the price of VND 400,000,000,
paid in cash. The fair value and book value of assets and liabilities of
Company S at December 31, X0 are as follows:
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Items
Balance
sheet
(Book value)
Balance
sheet
(Fair value)
Difference
ASSET
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- Cash
50,000,000
50,000,000
- Account
receivable
50,000,000
50,000,000
- Inventory
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75,000,000
15,000,000
- Intangible
fixed asset
(Land
use rights)
40,000,000
100,000,000
60,000,000
- Tangible
fixed asset
(Buildings,
machines, equipment)
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590,000,000
(10,000,000)
- Accumulated
depreciation
(300,000,000)
(300,000,000)
Total assets
500,000,000
565,000,000
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LIABILITIES
200,000,000
235,000,000
(35,000,000)
- Account
payable
100,000,000
100,000,000
- Long-term
debts (Issued bonds)
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135,000,000
(35,000,000)
OWNER’S EQUITY
300,000,000
- Contributed
capital (VND 10,000 par value)
200,000,000
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- Retained
earnings
100,000,000
Total equity
500,000,000
(35,000,000)
Net assets
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330,000,000
30,000,000
Thus Company P acquires more than the book value
of the net asset of Company S an amount of VND 100,000,000 (400,000,000 -
300,000,000) and more than the fair value of the net asset of Company S an
amount of VND 70,000,000 (400,000,000 - 330,000,000).
* When purchasing all shares of Company S on
January 1, X1 and becoming the parent company, Company P shall record the
following contents on its accounting book:
Dr 221 – Investment in
subsidiaries
400,000,000 (Company S in details)
Cr 111,
112
400,000,000
* In order to prepare the consolidated financial
statement, at the acquisition date (January 01, X1), Company P shall record
adjusting entries as follows:
a) Record the difference between fair value and
book value of identifiable assets and liabilities of Company S at the
acquisition date (January 01, X1):
Increase – Inventory (= 75,000,000 -
60,000,000)
15,000,000
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(= 100,000,000 – 40,000,000)
Decrease – Tangible fixed assets (= 590,000,000
-
600,000,000)
10,000,000
Increase – Long-term debts (= 135,000,000 -
100,000,000)
35,000,000
Increase – Difference in asset
revaluation
30,000,000
(The difference between the fair value and the
book value of identifiable assets and liabilities acquired of the subsidiary at
the acquisition date)
Exclude book value of the investment by the
parent company in the subsidiary and capital amount of the parent company
contributed in the owner’s equity of the subsidiary at the acquisition date, at
the same time record the amount of goodwill derived:
Decrease – Contributed capital (of subsidiary
S)
200,000,000
Decrease – Undistributed profits (of subsidiary
S)
100,000,000
Increase – Difference in asset
revaluation
30,000,000
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Decrease – Investment in subsidiaries (of parent
company
P)
400,000,000
Example 5: Acquire less than 100% shares,
goodwill derived
On January 1, X1, Company P purchased 80% shares
outstanding of Company S at the price of VND 320,000,000, paid in bank deposit.
The fair value and book value of assets and liabilities in the balance sheet of
Company S at December 31, X0 are as follows:
Unit: VND
Items
Book value
Fair value
Difference
ASSET
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- Cash
50,000,000
50,000,000
- Account
receivable
50,000,000
50,000,000
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- Inventory
60,000,000
75,000,000
15,000,000
- Intangible
fixed asset
(Land
use rights)
40,000,000
100,000,000
60,000,000
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(Buildings,
machines, equipment)
600,000,000
590,000,000
(10,000,000)
- Accumulated
depreciation
(300,000,000)
(300,000,000)
Total assets
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565,000,000
65,000,000
LIABILITIES
200,000,000
235,000,000
(35,000,000)
- Account
payable
100,000,000
100,000,000
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- Long-term
debts (Issued bonds)
100,000,000
135,000,000
(35,000,000)
OWNER’S EQUITY
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- Contributed
capital (VND 10,000 par value)
200,000,000
- Retained
earnings
100,000,000
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Total equity
500,000,000
Net assets
300,000,000
330,000,000
30,000,000
- Cost
of the business consolidation:
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- Equity
of Company P in the net asset value of Company S: 80% x 330,000,000
264,000,000
- Goodwill
56,000,000
- Benefits of minor
shareholders: 20% x 330,000,000 =
66,000,000
* Company P, when buying
shares of Company S on January 1, X1, shall record the following contents (on
the accounting book of company P):
221 – Investment in
subsidiaries
320,000,000 (Company S in details)
Cr
112
320,000,000
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a) Record the difference
between fair value and book value of identifiable assets and liabilities of
Company S at the acquisition date (January 01, X1):
Increase - Inventory (= 75,000,000 -
60,000,000)
15,000,000
Increase = Intangible fixed
assets (land use
rights)
60,000,000
(=
100,000,000 - 40,000,000)
Decrease – Tangible fixed assets (= 590,000,000
-
600,000,000)
10,000,000
Increase – Long-term debts (= 135,000,000 -
100,000,000)
35,000,000
Increase - Difference in asset
revaluation (The difference between fair value and book value of identifiable
assets and liabilities acquired from the subsidiary at the acquisition date)
30,000,000
b) Exclude book value of the
investment by the parent company in the subsidiary and capital amount of the
parent company contributed in the owner’s equity of the subsidiary at the
acquisition date, at the same time record the amount of goodwill derived:
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Decrease – Undistributed
profits (of subsidiary S)
(80%)
80,000,000
Decrease – Difference in asset
revaluation
24,000,000
Increase –
Goodwill
56,000,000
Decrease – Investment in
subsidiaries (of parent company
P)
320,000,000
c) Determine benefits of
minor shareholders in the value of net assets of the consolidated subsidiary at
the acquisition date:
Decrease – Contributed
capital (of subsidiary S)
(20%)
40,000,000
Decrease – Undistributed
profits (of subsidiary S)
(20%)
20,000,000
Decrease – Difference in
asset
revaluation
6,000,000
Increase – Benefits of minor shareholders.
66,000,000
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Unit: VND
Items
Balance sheet of Company P
Balance sheet of Company S
Adjusting entry
Consolidated balance sheet
Increase
Decrease
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- Cash
10,000,000
50,000,000
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60,000,000
- Account receivable
75,000,000
50,000,000
125,000,000
- Inventory
100,000,000
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(a) 15,000,000
175,000,000
- Intangible fixed asset
(Land use
rights)
175,000,000
40,000,000
(a) 60,000,000
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- Tangible fixed asset
(Buildings, machines,
equipment)
800,000,000
600,000,000
(a) 10,000,000
1,390,000,000
- Accumulated depreciation
(400,000,000)
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(700,000,000)
- Investment in
subsidiaries
320,000,000
(b) 320,000,000
-
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(b) 56,000,000
56,000,000
Total assets
1,080,000,000
500,000,000
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1,381,000,000
LIABILITIES
280,000,000
200,000,000
515,000,000
- Account payable
100,000,000
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200,000,000
- Long-term debts (Issued bonds)
180,000,000
100,000,000
(a) 35,000,000
315,000,000
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800,000,000
300,000,000
300,000,000
800,000,000
- Contributed capital (VND 10,000 par value)
500,000,000
200,000,000
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(c) 40,000,000
500,000,000
- Retained earnings
300,000,000
100,000,000
(b) 80,000,000
(c) 20,000,000
300,000,000
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(a) 30,000,000
(b) 24,000,000
(c) 6,000,000
-
BENEFITS OF
MINOR SHAREHOLDERS
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66,000,000
Total equity
1,080,000,000
500,000,000
1,381,000,000
II. GUIDANCE OF THE
IMPLEMENTATION OF ACCOUNTING STANDARD “PROVISIONS, CONTINGENT ASSETS AND
CONTINGENT LIABILITIES”
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1. A provision is a
liability of uncertain timing or amount.
Enterprises shall recognize provisions if they
fully meet the conditions stipulated in paragraph 11 accounting standard 18 –
Provisions, contingent assets and contingent liabilities.
2. Contingent liability:
2.1. A contingent liability is:
a. A possible obligation that arises from past
events and whose existence will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within the
control of the enterprise; or
b. A present obligation that arises from past
events but is not recognized because:
It is not probable that an outflow of resources
embodying economic benefits will be required to settle the obligation; or
The amount of the obligation cannot be measured
with sufficient reliability.
2.2. An enterprise shall not recognize a
contingent liability.
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3. Contingent asset:
3.1. A contingent asset is a possible asset that
arises from past events and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events not wholly
within the control of the enterprise.
3.2. An enterprise shall not recognize a
contingent asset.
Contingent assets shall not be recognized in
financial statements since this may result in the recognition of income that
may never be realized.
4. Provisions for payables
often include:
- Payable provisions for
product warranty;
- Payable provisions for enterprise
restructure;
- Payable provisions for
contracts with major risk in which the payable costs for the obligations
relating to the contract exceed the economic benefits expected to be obtained
from such contracts;
- Other payable provisions.
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B. SPECIFIC PROVISIONS
Accountants shall use account 352 – Provisions
for payables to record provisions.
Account 352 – Provisions for payable reflects
the enterprise’s provisions and use for payables.
1. Accounting
methods for account 352 – Provisions for payables shall comply with the
following regulations:
1.1. A payable provision shall be recorded when
the following regulations are satisfied:
a. The enterprise’s liability (legal liability
or joint liability) is the result of a previous event;
b. An outflow of resources embodying economic
benefits will be probable that leads to the settlement of the obligation; and
c. The amount of the obligation can be measured
with sufficient reliability.
1.2. The recorded value of a payable provision
is the most reasonable amount that will be spent to fulfill the liability at
the end of the accounting period.
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Provision for payable on construction warranty
is set up for each construction and is set up at the end of an accounting year
or at the end of an interim accounting period. In case the amount of provision
for payable on construction warranty set up is higher than real expenses
incurred, the difference refunded shall be recorded as an increase in other
income (Cr Account 711 - Other income).
1.4. Only the expenses related to the provision
may be covered by such provision.
1.5. Do not record a provision for future loss
on operation unless it is related to a high-risk contract and is qualified as a
provision.
1.6. If the enterprise enters into a high-risk
contract, the current liability under the contract shall be determined and
recorded as a provision. In this case, each high-risk contract shall have a
separate provision.
1.7. A provision for expenses of enterprise
restructuring are only recorded if it fully meets the conditions stipulated in
paragraph 11 accounting standard 18 – Provisions, contingent assets and
contingent liabilities.
1.8. When conducting the enterprise
restructuring, jointly liable obligation only incurred when enterprises:
a. Have an official and specific plan to clearly
determine the enterprise restructuring, which include at least the following 5
contents:
- All or a part of a
business related;
- Influenced important
positions;
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- Expenses that will be
paid; and
- Time when the plan is performed.
b. Give a reliable estimation on affected
subjects and conduct restructuring process by starting to implement that plan,
or noticing important issues of restructure to affected subjects.
1.9. A provision for restructuring is only estimated
for expenses directly incurred from restructuring activities; which are
expenses that meet both conditions:
a. Necessary for restructuring activities; and
b. Not related to regular activities of the
enterprise.
1.10. A provision for restructuring excludes the
following expenses:
a. Re-training or transferring existing
employees;
b. Marketing;
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2. Structure
and contents of account 352 – Provision for payables
Debit:
- Record a decrease in provision
for payables when incurring expenses related to the provision formed initially;
- Record a decrease in
(refund) provision for payables when the enterprise suffering from an outflow
of resources embodying economic benefits due to not paying debt obligation;
- Record a decrease in
provision for payables on the negative difference between the provisions for
payable formed this year and the unspent provision for payables established for
previous year.
Credit: Record provision for payables to
expenses
Credit balance: Record current provision for
payables at the end of term.
3. Accounting
methods for major transactions:
3.1. When the enterprise determines a provision
for the cost of restructuring the enterprise and satisfies the conditions for
recognition of the provision, when setting up a provision for the cost of
enterprise restructuring, record:
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Cr 352 - Payable provisions.
3.2. If the enterprise enters into contracts
with major risk in which the payable costs for the obligations relating to the
contract exceed the economic benefits expected to be obtained from such
contracts. Mandatory costs under contract terms such as indemnity or
compensation for failure to perform the contract, when setting up a provision
for a high-risk contract, record:
Dr 642 - General administration expenses (6426)
Cr 352 - Payable provisions.
3.3. In case the enterprise sells goods for
customers including warranty for repairing fails due to production fault,
discovered in the warranty period of products, goods, the enterprise shall
determine the cost of repair for the entire warranty obligation. When setting
up provisions for the cost of repairing and maintenance of products and goods,
record:
Dr 641 – Selling expenses
Cr 352 - Payable provisions.
When setting up provisions for the cost of
warranty for construction works, record:
Dr 627 - General production expenses
...
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3.4. When setting up other provisions included
in the general administrative expense, record:
Dr 642 - General administration expenses (6426)
Cr 352 - Payable provisions.
3.5. When incurring expenses related to the
provision formed initially:
(1) When incurring cash expenses related to the
repayment of liabilities which have been formed provisions, record:
Dr 352 - Payable provisions.
Cr 111, 112, 331...
(2) When incurring expenses on warranty of
products, goods and construction works related to the payable provision
established initially (such as material costs, labor costs, fixed-asset
depreciation expenses, outsourced services expenses, etc), record:
(3) In case of not having the independent
section on warranty of products, goods and construction works:
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Dr 621, 622, 623, 627
Dr 133 – Deductible VAT (if any) Cr 152, 153,
214, 331, 334, 338,...
At the end of term, the accountant transfers
expenses as follows:
Dr 154 – Work in progress Cr 621, 622, 623, 627.
+ When completing the repairing of products,
goods, construction works and transferring them to customer, record:
Cr 352 - Payable provisions.
Dr 641 – Selling expenses (Insufficient payable
provision for warranty of products, goods)
Cr 154 – Work in progress.
(4) In case of having the independent section on
warranty of products, goods and construction works:
+ Payable for subordinate units, internal units
on warranty expenses of products, goods, construction works completed and
transferred to customers, record:
...
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Dr 641 – Selling expenses (Insufficient payable
provision for warranty of products, goods)
Cr 336 – Internal payable
+ When paying subordinate units, internal units
on warranty expenses of products, goods, construction works, record:
Cr 336 – Internal payable
Cr 111, 112.
3.6. At the end of the accounting year or the
interim accounting period (hereinafter referred to as accounting period), the
enterprise must calculate and determine the amount of payable provisions needs
to be set up:
(1) In case the provision for payables needs to
be set up in this accounting period is higher than the unspent provision for
payables set up in the previous accounting period, the difference is accounted
into expenses, record:
Dr 642 - General administration expenses (6426)
Dr 641 – Selling expenses (According to payable
provision for warranty of products, goods)
Cr 352 - Payable provisions.
...
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Cr 352 - Payable provisions.
Cr 642 - General administration expenses (6426) Cr
641 – Selling expenses (According to payable provision for warranty of
products, goods)
(3) At the end of an accounting year or at the
end of an interim accounting period, when determining the payable provision on
construction warranty for each construction, record:
Dr 627 - General production
expenses
Cr 352 – Provisions for payables
3.7. At the end of the warranty period of the
construction, if the construction does not need a warranty, or the amount of
provision for payable on construction warranty is higher than real expenses
incurred, the difference shall be refunded as follows:
Dr 352 – Provision for payables Cr 711 – Other
income.
3.8. In some cases, the enterprise may seek for
a third party to pay a part or total expenses of the provision (for example,
through insurance contracts, compensations or warranty of suppliers), the third
party may refund the amount paid by the enterprises. When the enterprise
receives the compensation of a third party to pay a part or total expenses for
provision, the accountant shall record:
Dr 111, 112, etc. Cr 711 – Other income.
3.9. Contingent assets shall not be recognized
in financial statements since this may result in the recognition of income that
may never be realized (For example, an indemnity is being taken legal action by
the enterprise when the outcome is uncertain). However, when the acquisition of
these items is almost certain, the assets associated with them are no longer a
contingent asset (as the enterprise is almost certainly earning the economic
benefits from it), assets and income related must be recognized in the
financial statements, the accountant shall record:
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3.10. When implementing Accounting Standard 18 –
Provisions, contingent assets and contingent liabilities", if there is
credit balance on the details of the pre-deducted amounts for warranty expenses
for products, goods and construction works on account 335 – Expense payable,
the accountant shall transfer the credit balance of account 335 (details of the
pre-deducted amounts for warranty expenses for products, goods and construction
works) to account 352 - Provisions for payables.
C. DISCLOSURE IN FINANCIAL
STATEMENT
1. For each type of
provision, the enterprise shall disclose:
a. The carrying amount at the beginning and end
of the period;
b. Additional provisions made in the period,
including increases to existing provisions;
c. The decrease in provision during the period
due to incurring expenses related to the provision formed initially;
d. The decrease in unused provision during the
period.
2. Enterprises must
disclose in the notes to the financial statements the non-comparative financial
information as provided in paragraph 80 to paragraph 87 of Accounting Standard
18 - Provisions, contingent assets and contingent liabilities.
III- GUIDANCE OF THE
IMPLEMENTATION OF ACCOUNTING STANDARD
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* Adapting to paragraph 14 of Accounting
Standard 30 - Earnings per share (promulgated together with Decision No.
100/2005/QD-Btc dated December 28, 2005 of the Minister of Finance): the phrase
“và là khoản giảm trừ vào lợi nhuận chưa phân phối của doanh nghiệp” is
abrogated.
I. GENERAL PROVISIONS
1. Scope
This part of the Circular provides and guides
the method of calculating basic earnings per share and discloses this indicator
in the financial statement. If the enterprise must prepare both separate
financial statements and consolidated financial statements, the information on
the earnings per share under this accounting standard shall be disclosed in the
consolidated financial statements. If the enterprise does not need to prepare
the consolidated financial statements, the information on the earnings per
share shall be disclosed in the separate financial statements and notes for
financial statements.
The objective of diluted earnings per share and
disclosure of this indicator in financial statements and other contents
specified in accounting standard 30 – Earnings per share will be guided
specifically after the Law on Securities and the guiding documents of the Law
on Securities have provisions on financial instruments.
2. Calculating
method for earnings per share
The enterprise shall calculate and disclose in
financial statement the basic earnings per share amounts for profit or loss
attributable to shareholders holding common shares of the enterprise. Basic
earnings per share shall be calculated by dividing profit or loss allocated to
shareholders holding common shares of the enterprise by the weighted average
number of ordinary shares outstanding during the period.
Basic
earnings per share
=
...
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Weighted
average number of ordinary shares outstanding during the period
“Profit or loss allocated to shareholders holding
common shares” refers to the after-tax profits or losses after being adjusted
by preferred share dividends, differences arising from the settlement of
preferred shares and similar effects of preferred shares classified as equity.
“The number of ordinary shares used to calculate
basic earnings per share” shall be the weighted average number of ordinary
shares outstanding during the period. The weighted average number of ordinary
shares outstanding during the period and all periods shall be adjusted for
events, other than the conversion of potential ordinary shares, that have
changed the number of ordinary shares outstanding without a corresponding
change in resources.
3. Disclose earnings
per share in financial statement
3.1. Joint-stock companies which are parent
companies that have to prepare the consolidated financial statements shall
disclose the basic earnings per share in the consolidated financial statements
but not disclose it in the separate financial statements. In this case, the
profit or loss allocated to shareholders holding common shares of the parent
company is the profit or loss on the basis of information consolidation in
accordance with Accounting Standard 25 - Consolidated Financial Statements and
Accounting for Investments in Subsidiaries.
3.2. Joint-stock companies which are independent
companies that do not have to prepare the consolidated financial statements
shall disclose the basic earnings per share in the separate financial
statements but not disclose it in the separate financial statements. In this
case, the profit or loss allocated to shareholders holding common shares of the
company is the profit or loss of this joint-stock company.
II. Specific provisions
1. Determine the profit
or loss allocated to common shares
The profit or loss allocated to shareholders
holding common shares shall be calculated by using the profit or loss after
corporate income tax during the period minus (-) the decrease amounts adjusted
plus (+) the increase amounts adjusted. If the company discloses earnings per
share in the consolidated financial statements, the profit or loss after
corporate income tax in the period is the profit or loss after corporate income
tax calculated on the basis of consolidated information. In case the company
discloses in the separate financial statements, the profit or loss after
corporate income tax in the period is the profit or loss after tax of the
company. The accountants shall, base on the detailed accounting book, monitor
the preferred shares and determine the following indicators:
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a. Dividends of preferred shares: Dividends
of preferred shares include: Dividends of non-cumulative preferred shares which
are not cumulative notified during the reporting period and dividends of
cumulative preferred shares arising during the reporting period. Dividends of
preferred shares are calculated as follows:
Dividends of
preferred shares
=
Rates of
dividends of preferred shares
x
Face value of
preferred shares
- Non-cumulative preferred share refers to
the share that if the company fails to declare dividend payment to the holders
of preferred shares due to losses or other reasons, such dividends will not be
transferred to the next period. When determining the profit or loss after
tax allocated to common shares, it is necessary to derive profit (loss) during
the period minus the dividend of preference shares not accrued that were
noticed during the period.
Example: Truong Son Joint Stock
Company has an amount of non-cumulative preferred shares of not more than 100
million VND, preferential dividends of 15% per year. Profits (or losses)
allocated to shareholders holding common shares in 2002 - 2005 are as follows:
Unit: VND
1,000,000
...
...
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2002
2003
2004
2005
Profit (loss) after corporate income tax
(50)
10
90
200
...
...
...
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-
-
15
15
The profit (or loss) allocated to common
shares
(50)
10
75
185
...
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2004: VND 90,000,000 - VND 15,000,000 = VND
75,000,000
2005: VND 200,000,000 - VND 15,000,000 = VND
185,000,000
- Cumulative preferred share is the type of
share that is guaranteed to be paid dividends, even in some accounting periods
that the company does not announce payment or just announces partial payment,
the outstanding dividends is accrued and the company must pay this dividend
before paying dividends of common shares. When calculating the profit or loss
after tax allocated to common shares, the profit (loss) after corporate income
tax shall be deducted from the preferential dividends arising during the
period. This value does not include cumulative preference dividends related to
previous periods.
Example: Truong Son Joint Stock Company
has an amount of cumulative preference shares of not more than 100 million VND,
preferential dividends of 15% per year. Profits (or losses) allocated to
shareholders holding common shares in 2002 - 2005 are as follows:
Unit: VND
1,000,000
Indicator
2002
2003
2004
...
...
...
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Profit (loss) after corporate income tax
(50)
10
90
200
Cumulative preferred shares arising during the
period
15
15
15
...
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Cumulative preferential dividends
15
30
45
60
The profit (or loss) allocated to common
shares
(65)
(5)
75
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According to the above example, in those years, the
cumulative preferential dividend is VND 15,000,000. The cumulative preferential
shares are gradually increased during the years, but are only adjusted as a
decrease in the profit or loss after the corporate income tax during the
period. Excluding other factors, the profit or loss allocated to shareholders
holding common shares is:
2002: - VND 50,000,000 - VND 15,000,000 = - VND
65,000,000
2003: VND 10,000,000 - VND 15,000,000 = - VND
5,000,000
2004: VND 90,000,000 - VND 15,000,000 = VND
75,000,000
2005: VND 200,000,000 - VND 15,000,000 = VND
185,000,000
b. The positive difference between the fair
value of payments to the owner and the book value of preference shares when
joint-stock companies repurchase the preference shares of owners.
When joint-stock companies repurchase the
preference shares of owners, the positive difference between the fair value of
payments to the owner and the book value of preference shares is deducted (-)
from profit (or loss) allocated to shareholders holding common shares of the
company to calculate basic earnings per share.
Example: In 2005, Truong Son Joint
Stock Company acquired an amount of preferred shares with par value of VND
50,000,000 at the price of VND 80,000,000. The after-tax profit of the company
is VND 200,000,000.
According to this example, the positive
difference between the fair value of the payment to the owner and the book
value of preferred shares = 80,000,000 VND - 50,000,000 VND = 30,000,000 VND.
The difference is recognized as a decrease in equity, so it does not affect the
income statements of the period. Therefore it must be adjusted as a decrease
when calculating the profit or loss allocated to common shares. Excluding other
factors, the profit or loss allocated to shareholders holding common shares is calculated
as follows:
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c. The positive difference between the fair
value of common shares or other payments made under conditions for beneficial
conversion at the time of payment and the fair value of the common shares
issued under original converting condition.
The positive difference between the fair value
of common shares or other payments made under conditions for beneficial
conversion is deducted (-) from profit (or loss) allocated to shareholders
holding common shares of the company to calculate basic earnings per share.
Example: In 2005, Truong Son Joint
Stock Company acquired an amount of preferred shares before due date. In order to
do this, the company must pay the holder an additional charge apart from the
original commitment of VND 20,000,000. The after-tax profit of the company is
VND 200,000,000.
According to this example, the additional charge
is recorded as a decrease in owner’s equity and does not affect the income
statements of the period. Therefore it must be adjusted as a decrease when
calculating the profit or loss allocated to common shares. Excluding other
factors, the profit or loss allocated to shareholders holding common shares is
calculated as follows:
The profit (or loss) allocated to common shares
during the period is VND 200,000,000 - VND 20,000,000 = VND 180,000,000.
1.2 Amounts of increase adjustments in profit
or loss after tax:
When joint-stock companies repurchase the
preference shares of owners, the positive difference between the fair value of
payments to the owner and the book value of preference shares is added the
profit (or loss) allocated to shareholders holding common shares of the company
to calculate basic earnings per share.
Example: In 2005, Truong Son Joint
Stock Company acquired an amount of preferred shares with par value of VND
50,000,000 at the price of VND 40,000,000. The after-tax profit of the company
is VND 200,000,000.
According to this example, the positive
difference between the fair value of the payment to the owner and the book
value of preferred shares = 50,000,000 VND - 40,000,000 VND = 10,000,000 VND.
The difference is recognized as an increase in equity, so it does not affect the
income statements during the period. Therefore it must be adjusted as an
increase when calculating the profit or loss allocated to common shares.
Excluding other factors, the profit or loss allocated to shareholders holding
common shares is calculated as follows:
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1.3. The profit (or loss) allocated to common
shares calculating chart
After calculating the adjusted indicators, the
accountant shall make calculating chart for the profit or loss allocated to
common shares statement as follows:
Truong Son joint-stock company
THE PROFIT (OR
LOSS) ALLOCATED TO COMMON SHARES CALCULATING CHART
Unit: ....
Indicator
Value
A
1
...
...
...
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2. Decreasing
adjustment
- Dividends
of preferred shares
+ Non-cumulative
preferred shares
First time:
...
...
...
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...
+ Non-cumulative
preferred shares
First time:
Second time:
...
...
...
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- The
positive difference between the fair value of payments to the owner and the
book value of preference shares
First time:
Second time:
...
...
...
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First time:
Second time:
- ...
Total decreasing
adjustments
...
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- The
positive difference between the fair value of payments to the owner and the
book value of preference shares
First time:
Second time:
- ...
...
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4. The
profit (or loss) allocated to common shares
Profit or loss allocated to common shares =
profit or loss after corporate income tax – total decreasing adjustments +
total increasing adjustments
Example: In the case of Truong Son Joint Stock
Company, assuming that the abovementioned cases occur, the profit or loss
allocated to common shares is determined as follows:
Truong Son joint-stock
company
THE PROFIT (OR
LOSS) ALLOCATED TO COMMON SHARES CALCULATING CHART
Unit: VND
Indicator
...
...
...
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A
1
1. Profit
or loss after corporate income tax
200,000,000
2. Decreasing
adjustment
- Dividends
of preferred shares
+ Non-cumulative
preferred shares
...
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+ Non-cumulative
preferred shares
15,000,000
- The
positive difference between the fair value of payments to the owner and the
book value of preference shares
30,000,000
- The
positive difference between the fair value of common shares or other payments
made under conditions for beneficial conversion
20,000,000
Total decreasing
adjustment
80,000,000
3. Increasing
adjustment
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- The
positive difference between the fair value of payments to the owner and the
book value of preference shares
10,000,000
Total increasing
adjustment
10,000,000
4. The
profit (or loss) allocated to common shares
130,000,000
The profit (or loss) allocated to common shares
= VND 200,000,000 - VND 80,000,000 + VND 10,000,000 = VND 130,000,000.
2. Determine the number
of shares for the purpose of calculating basic earnings per share
2.1. Issuance or re-acquirement of shares:
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Average number
of ordinary shares outstanding during the period
=
Number of
common shares outstanding at the beginning of the period
+
Number of
common shares issued during the period
x
Number of
days the shares are outstanding during the period
-
Number of
common shares re-acquired during the period
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Number of days
the shares are bought during the period
Total number of
days in the period
Total number of
days in the period
Example: In 2005, Truong Son Joint
Stock Company has the numbers of common shares changed as follows: (for
simplicity, the number of days in the period is calculated according to the
number of months in the period)
Date
Transaction
Number of
shares
Par value of
shares
(VND 1,000)
...
...
...
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(VND 1,000)
Average
number of shares
1/1
Beginning of the period
1,000
10
10,000
1,000 x 12/12 =
1,000
31/3
...
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600
10
6,000
600 x 9/12 = 450
30/8
acquirement of treasury shares
(150)
10
(1,500)
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Total
1,450
14,500
1,400
According to the data of the above example:
- The average
number of 1,000 shares issued at the beginning of the period is 1,000 x 12/12 =
1,000 shares
- The average number of 600 shares issued from
March 31 is 600 x 9/12 = 450 shares
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Weighted average number of common shares
outstanding during the period is 1,000 + 450 – 50 = 1,400 shares. Meanwhile,
the number of shares outstanding at the end of the period is 1,450.
2.2. Consolidation, split and bonus of shares
a. When splitting shares outstanding, the number
of common shares increased is corresponding to the share split ratio. In this
case there is no corresponding change in capital. In order to calculate the
average number of shares outstanding during the period, the company assumes the
split of shares occurred at the beginning of the reporting period.
Example: Continuing the example of
Truong Son Joint Stock Company, if on October 30, 2005 Truong Son Joint Stock
Company decides to split the number of shares outstanding with the criteria of
one share outstanding split into two new shares then after splitting, the company
will have 1,450 x 2 = 2,900 shares outstanding with par value of VND 5,000 per
share.
When calculating the number of shares for
calculation of earnings per share, the company must assume that the share split
has been made since January 1, 2005, in which the company calculates the
weighted average number of shares as follows:
Date
Transaction
Number of
shares
Par value of
shares
...
...
...
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Value
(VND 1,000)
Average
number of shares
1/1
Beginning of the period
2,000
5
10,000
2,000 x 12/12 =
2,000
...
...
...
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Issuance
1.200
5
6,000
1,200 x 9/12 =
900
30/8
Acquirement of treasury
shares
(300)
5
...
...
...
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(300) x 4/12 =
(100)
Total
2,900
14,500
2,800
According to the data of the above example:
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- Par value of each share decreases 2 times =
VND 10,000 : 2 = VND 5,000
- Total par value = VND 14,500,000, no changes
after the split.
- The weighted average number of shares
increases 2 times = 1,400 x 2 = 2,800 shares.
b. When consolidating shares, the number of
common shares decreased is corresponding to the share consolidation ratio. In
this case there is no corresponding change in capital. In order to calculate
the average number of shares outstanding during the period, the company assumes
the consolidation of shares occurred at the beginning of the reporting period.
Example: Continuing the example of
Truong Son Joint Stock Company, if on October 30, 2005 Truong Son Joint Stock
Company does not split but consolidates the number of shares outstanding with
the criteria of two share outstanding consolidated into one new shares then
after the consolidation, the company will have 1,450 : 2 = 725 shares
outstanding with par value of VND 20,000 per share.
When calculating the number of shares for
calculation of earnings per share, the company must assume that the share
consolidation has been made since January 1, 2005, in which the company
calculates the weighted average number of shares as follows:
Date
Transaction
Number of
shares
...
...
...
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(VND 1,000)
Value
(VND 1,000)
Average
number of shares
1/1
Beginning of the period
500
20
10,000
...
...
...
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31/3
Issuance
300
20
6,000
300 x 9/12 = 225
30/8
Acquirement of treasury shares
(75)
...
...
...
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(1,500)
(75) x 4/12 =
(25)
Total
725
14,500
700
According to the data of the above example:
...
...
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- Par value of each share increases 2 times =
VND 10,000 x 2 = VND 20,000
- Total par value = VND 14,500,000, no changes after
the consolidation.
- The weighted average number of shares
decreases 2 times = 1,400 : 2 = 700 shares.
c. When issuing bonus shares, the number of
common shares will increase corresponding to the total number of bonus shares
for one share outstanding. In this case there is no corresponding change in the
capital because the company issues common shares for existing shareholders from
undistributed profits without collecting any money.
Example: Continuing the example of
Truong Son Joint Stock Company, if at the end of 2005 Truong Son Joint Stock
Company decides to issue bonus shares from undistributed profits with the
criteria of one share outstanding will be rewarded with 1 new share then after
the split, the company will have 1,450 + 1,450 = 2,900 shares with par value of
VND 10,000 per share
When calculating the number of shares for
calculation of basic earnings per share, the company must assume that the
issuance of bonus shares has been performed since January 1, 2005, in which the
company calculates the weighted average number of shares as follows:
Date
Transaction
Number of
shares
...
...
...
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(VND 1,000)
Value
(VND 1,000)
Average
number of shares
1/1
Beginning of the period
2,000
10
20,000
...
...
...
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31/3
Issuance
1,200
10
12,000
1,200 x 9/12 =
900
30/8
Acquirement of treasury shares
(300)
...
...
...
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(3,000)
(300) x 4/12 =
(100)
Total
2,900
29,000
2,800
According to the data of the above example:
...
...
...
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- Par value of each share does not change = VND
10,000
- Total par value of shares increases VND 14,500,000.
However, the undistributed profits also decrease by VND 14,500,000, so the
total equity of the company remained unchanged.
- The weighted average number of shares
increases 1,400 shares = 1,400 + 1,400 = 2,800 shares.
3. Calculation of basic
earnings per share
Basic earnings per share shall be calculated by
dividing profit or loss allocated to shareholders holding common shares of the
enterprise by the weighted average number of common shares outstanding during
the period. Profit or loss allocated to common shares = profit or loss after
corporate income tax – total number of decreasing adjustments + total number of
increasing adjustments.
Basic
earnings per share
=
Profit or loss
allocated to common shares (= profit or loss after corporate income tax –
total decreasing adjustments + total increasing adjustments)
Weighted
average number of ordinary shares outstanding during the period
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- Issuance or re-acquirement of shares:
Earnings per share = 130,000,000/1,400 = VND
92,800 per share
- Issuance, re-acquirement and split of shares:
Earnings per share = 130,000,000/2,800 = VND
46,400 per share
- Issuance, re-acquirement and consolidation of
shares:
Earnings per share = 130,000,000/700 = VND
185,600 per share
- Issuance, re-acquirement and of shares and
issuance of bonus shares:
Earnings per share = 130,000,000/2,800 = VND
46,400 per share
4. Retroactive adjustment
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The results of calculation per share reflecting
the changes in the number of shares shall be disclosed. In addition, the basic
earnings per share shall be adjusted due to the effects of errors and
adjustments arising from changes in accounting policies according to
retroactive regulations and effects of the business consolidation.
5. Disclosure in financial
statement
The joint stock company shall disclose additional
contents on the income statement such as profit or loss allocated to common
shares, average number of shares outstanding during the period and basic
earnings per share from the profit (loss) after corporate income tax allocated
to shareholders holding common shares of the parent company for all reporting
periods. The joint stock company shall disclose basic earnings per share even
if the amounts are negative (loss per share).
On the income statement, the joint stock company
shall disclose the indicators on basic earnings per share as follows:
When disclosing in the consolidated income
statement:
- Profit or loss allocated to shareholders
holding common shares calculated on the basis of consolidated information.
- Average number of ordinary shares
outstanding during the period of the parent company;
- Basic earnings per shares disclosed on the
basic of consolidated information.
When disclosing in the separate income
statement:
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- Average number of ordinary shares
outstanding during the period of the independent joint stock company;
- Basic earnings per share of the
independent joint stock company.
6. Disclosure in notes to
financial statement
In order to explain the indicators disclosed in
the income statement, in the notes to the financial statement, the joint stock
company shall disclose additional information as follows:
- Basic earnings per share
Current year
Previous
year
+ Profit after corporate income tax
+ Increasing or decreasing adjustments to
determine profit or loss allocated to shareholders holding common shares:
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Decreasing adjustments
+ Profit or loss allocated to shareholders holding
common shares
+ Average common shares outstanding during the
period
+ Basic earnings per share
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Recording method:
+ Profits after corporate income tax: According
to the data in the income statement.
+ Increasing or decreasing adjustments to
determine profit or loss allocated to shareholders holding common shares:
Increasing adjustments: Use data of Column 2 –
Increasing adjustments, line Total in the chart of adjusting data.
Decreasing adjustments: Use data of Column 1 –
Decreasing adjustments, line Total in the chart of adjusting data.
+ Profit or loss allocated to shareholders
holding common shares = profit after corporate income tax – decreasing
adjustments + increasing adjustments.
+ Average common shares outstanding during the
period.
+ Basic earnings per share.
- Other information:
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+ A detailed report on the impact of each type
of financial instrument that affects the basic earnings per share.
IV- IMPLEMENTATION
ORGANIZATION
1- This Circular shall enter into force after 15
days from the date of being published on the Official Gazette. Any regulations contrary
to this Circular shall be annulled. Other related accounting issues not guided
in this Circular shall comply with effective accounting regimes.
2- Companies and corporations that have specific
accounting regimes approved by the Ministry of Finance must, based on 04
accounting standards (batch 5) issued together with Decision No.
100/2005/QD-BTC dated December 28, 2005 and this Circular, issue appropriate
guidelines and supplements.
3- Ministries, People’s Committees, Finance
Services and Tax Departments of the provinces shall guide the implementation of
this Circular. Any problems arising in the course of implementation should be
reported to the Ministry of Finance for study and settlement.
PP THE
MINISTER
DEPUTY MINISTER
Le Thi Bang Tam
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