CIRCULAR

GUIDING THE COST-ACCOUNTING OF THE SETTING UP AND USE OF THE RESERVE FOR THE PRICE DECREASE OF UNSOLD GOODS, THE RESERVE FOR BAD DEBTS AND THE RESERVE FOR THE PRICE DECREASE OF SECURITIES OF STATE ENTERPRISES

In subsequence to Circular No. 64-TC/TCDN of September 15, 1997 of the Minister of Finance "guiding the setting up and use of the reserve for the price decrease of unsold goods, the reserve for bad debts and the reserve for the price decrease of securities of State enterprises, the Ministry of Finance hereby provides the following guidance on the method of cost-accounting of the setting up, remittance and handling of various reserves of enterprises

I. GENERAL PROVISIONS:

1. The time of setting up and remitting the reserve for the price decrease of unsold goods, the reserve for bad debts and the reserve for the price decrease of securities shall be the time of closing the accounting books before the making of annual financial statements.

2. All the reserves which have been set up and accounted into the costs at the end of the last fiscal year shall be remitted at the end of the subsequent fiscal year. The reserve for the price decrease of unsold materials and goods and the reserve for bad debts shall be remitted into the irregular income while the reserve for the price decrease of securities shall be remitted into the income from financial activities.

3. The objects, the conditions for setting up reserves and their levels and the writing off of irrecoverable debts shall comply with the provisions of Circular No. 64-TC/TCDN of September 15, 1997 of the Ministry of Finance.

II. METHOD OF COST-ACCOUNTING OF THE SETTING UP AND REMITTANCE OF RESERVES

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At the end of every accounting year, enterprises' accountants shall base themselves on the actual price decrease of each kind of unsold material or goods to calculate and determine the level of the reserve to be set up for the subsequent accounting year. Write as follows:

Debit of Account 642 - Enterprise's managerial costs

Credit of Account 159 - The reserve for the price decrease of unsold goods.

- At the end of the subsequent accounting YEAR, the accountants shall account and remit all the reserve already set up at the end of the last accounting year into the irregular incomes and write:

Debit of Account 159 - The reserve for the price decrease of unsold goods

Credit of Account 721 - Irregular incomes.

At the same time they shall calculate and determine the level of the new reserve for the price decrease of unsold goods to be set up for the subsequent accounting year and write:

Debit of Account 642 - Enterprise' managerial cost

Credit of Account 159 - The reserve for the price decrease of unsold goods.

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At the end of every accounting year, enterprises' accountants shall base themselves on the actual price decrease of securities and the existing types of securities to calculate and determine the level of the reserve for the price decrease of securities to be set up for the subsequent accounting year, THEN write:

Debit of Account 811 - Financial operation costs

Credit of Account 129 - The reserve for the price decrease of short-term investment.

Credit of Account 229 - The reserve for the price decrease of long-term investment

- At the end of the subsequent accounting period, accountants shall account and remit all the reserve already set up at the end of the last accounting year into the income from financial activities and write:

Debit of Account 129 - The reserve for the price decrease of short-term investment

Debit of Account 229 - The reserve for the price decrease of long-term investment

Credit of Account 711 - Incomes from financial activities.

At the same time they shall calculate and determine the level of the new reserve for the price decrease of the investment in securities to be set up for the subsequent accounting year and write:

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Credit of Account 129 - The reserve for the price decrease of short-term investment

Credit of Account 229 - The reserve for the price decrease of long-term investment

3. Cost-accounting of the reserve for bad debts

3.1. Cost-accounting of the setting up and remittance of the reserves for bad debts:

- At the end of every accounting year, enterprises' accountants shall base themselves on the amount of bad debts and the estimated loss likely to occur during the plan year to calculate and determine the level of the reserve for bad debts to be set up for the subsequent accounting year, then write:

Debit of Account 642 - Enterprise's managerial costs

Credit of Account 139 - The reserve for bad debts.

- At the end of the subsequent accounting year, the accountants shall account and remit all the bad debt reserves already set up at the end of the last accounting year into the irregular incomes and write:

Debit of Account 139 - The reserve for bad debts

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At the same time they shall determine the level of the new reserve bad debts to be set up for the subsequent accounting year, and write:

Debit of Account 642 - Enterprise' managerial cost

Credit of Account 139 - The reserve for bad debts

3.2. Cost-accounting of the writing off of bad debts

The writing off of bad debts which are unrecoverable shall comply with current financial regulations. When there is a decision to permit the writing off of debts, accountants shall write:

Debit of Account 642 - Enterprise's managerial costs

Credit of Account 131 - Customers' liable amounts

Credit of Account 138 - Other liable amounts.

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For bad debts that have been already written off but later recovered, accountants shall base themselves on the actual value of the recovered debt(s) and write:

Debit of Account 111 - Cash

Debit of Account 112 - Bank deposits

Credit of Account 721 - Irregular incomes.

At the same time, write on the credit side of Account 004 - Bad debts already dealt with.

III. IMPLEMENTATION PROVISIONS

1. This Circular takes effect 15 days after its signing. All previous provisions contrary to the provisions of this Circular are hereby annulled.

2. In the course of implementation any arising problem should be promptly reported by enterprises to the Ministry of Finance for study, guidance and settlement.

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THE MINISTRY OF FINANCE
VICE MINISTER




Vu Mong Giao