MINISTRY OF FINANCE
SOCIALIST REPUBLIC OF VIETNAM
Independence – Freedom - Happiness
Hanoi, August 08, 2019
Instructions on the appropriating and handling of provisions of devaluation of stocks, losses of investments, bad debts and warranty on products, goods, services, construction works at enterprises
Pursuant to the Government's Decree No.87/2017/ND-CP of July 26, 2017, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;
Pursuant to the Decree No.218/2013/ND-CP dated December 26, 2013 of the Government detailing and guiding the implementation of the Law on Corporate income tax;
Pursuant to the Government's Decree No.91/2014/ND-CP of October 1, 2014, amending and supplementing a number of articles in tax-related Decrees; Decree No.12/2015/ND-CP dated February 12, 2015 of the Government detailing the implementation of the Law amending and supplementing a number of articles of tax laws and amending and supplementing a number of articles of Decree on taxes;
At the proposal of the Director of the Enterprise Finance Department;
The Minister of Finance issues a Circular guiding the setting up and handling of provisions for devaluation of inventories, losses of investments, bad debts and warranty of products, goods and services, construction works at enterprises.
Article 1. Scope of regulation and objects of application
1. This Circular guides the appropriating and handling of provisions of devaluation of stocks, losses of investments, bad debts and warranty on products, goods, services, construction works at enterprises serving as a basis for determining deductible expenses when determining incomes subject to corporate income tax according to regulations.
The provisioning for the purpose of preparing and presenting the financial statements of economic organizations shall comply with the law on accounting.
2. This Circular applies to subjects being economic organizations (hereinafter referred to as enterprises for short) that are established, conducting production and business activities according to the provisions of Vietnamese law.
The foreign credit institutions and bank branches established legally in Vietnam shall appropriate and handle provisions according to the provisions of this Circular. For risk provisions in the operations of foreign credit institutions and bank branches, the provision and use shall be made according to regulations promulgated by the State Bank of Vietnam after reaching agreement with the Ministry of Finance.
Article 2. Interpretation of terms
In this Circular, the terms below are construed as follows:
1. The provisioning for devaluation of inventories: is a provision when there is a devaluation of net realizable value which is lower than the book value of inventories.
2. Provision for loss of investments: is a provision for the possible lost value due to the price decrease of the securities held by the enterprise and the possible loss of losses caused by devaluation of other investments of enterprises into economic organizations receiving contributed capital (excluding investments abroad).
3. Provision for bad debts: is a provision for the loss value of the receivable debts which are overdue and the receivable debts which have not yet matured but possibly not recovered on time.
4. Provision for warranty of products, goods, services and construction works: means a provision for expenses for products, goods, services and construction works already sold, provided or delivered to the buyers, but the enterprise is still obliged to continue to repair, finish according to contracts or commitments to customers.
Article 3. General principles of provisioning
1. Provisions prescribed in this Circular shall be accounted into deductible expenses when determining incomes subject to corporate income tax in the annual reporting period in order to offset possible losses in the subsequent year's reporting period; ensuring that enterprises reflect the value of inventories, investments which are not higher than market prices and the value of receivables is not higher than the recoverable value at the time of preparing the financial statements. main year.
2. Time of appropriating and reversing provisions is the time of preparing annual financial statements.
3. Enterprises shall consider and decide on the building-up of regulations on management of supplies and goods, management of investment portfolios and debt management in order to limit business risks, clearly determining each division, each person in monitoring, managing materials, goods, investments, debt collection.
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4. Enterprises do not appropriate risk provisions for investments abroad.