Vietnam: What are the regulations on provisions for devaluation of inventory? What is the handling of inventory for which provisions have been made?
- In Vietnam, what are objects for which provisions for devaluation of inventory shall be made?
- What is the formula for calculating the provision level for the devaluation of inventory in Vietnam?
- What are the regulations on making provisions for devaluation of inventory in Vietnam?
- What are the regulations on handling inventory for which provisions have been made in Vietnam?
In Vietnam, what are objects for which provisions for devaluation of inventory shall be made?
Under Clause 1 Article 4 of Circular 48/2019/TT-BTC stipulating provisions for devaluation of inventory in Vietnam:
Provisions for devaluation of inventory
1. Provisions shall be made for devaluation of materials, tools, equipment, goods, goods in transit, goods dispatched for sale, goods stored in tax-suspension warehouse, finished goods (hereinafter referred to as inventory) which have their book original prices are higher than the net realizable value and:
- There are lawful invoices and documents according to the Finance Ministry's regulations or other documents which can prove their costs.
- They are owned by the stocking enterprise at the time of making financial statements.
Thus, provisions shall be made for the devaluation of materials, tools, equipment, goods, goods in transit, goods dispatched for sale, goods stored in tax-suspension warehouse, and finished goods..under the above regulations.
What is the formula for calculating the provision level for the devaluation of inventory in Vietnam?
Under Clause 2 Article 4 of Circular 48/2019/TT-BTC, the provision level for the devaluation of inventory in Vietnam is calculated according to the following formula:
"Article 4. Provisions for devaluation of inventory
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2. The level of provision is calculated according to the following formula:
Provision for devaluation of inventory = Quantity of inventory at the time of making financial statement x Original price of inventory in accounting book - Net realizable value of inventory
Where:
- The original price of inventory is determined in accordance with the Standard no.2 – Inventory attached to Decision No. 149/2001/QD-BTC dated December 31, 2001 by the Minister of Finance and other amending documents (if any).
- Net realizable value means the estimated selling price of inventory in a normal production and business period at the time of making financial statement minus (-) the estimated cost for finishing the products and the estimated sale expenses.
Thus, the provision level for devaluation of inventory in Vietnam is calculated by the above formula.
What are the regulations on making provisions for devaluation of inventory in Vietnam?
Under Clause 3 Article 4 of Circular 48/2019/TT-BTC on making provisions for devaluation of inventory in Vietnam:
"Article 4. Provisions for devaluation of inventory
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3. When making financial statement, based on the enterprise’s documents proving that the original price of inventory is higher than their net realizable price and regulations prescribed in Clauses 1 and 2 of this Article, enterprises shall make provision as follows:
a) If the amount of provision to be made is equal to the remaining provision for devaluation of inventory in the previous year’s statement, the enterprise shall not make additional provision.
b) If the amount of provision to be made is higher than the remaining provision for devaluation of inventory in the previous year’s statement, the enterprise shall add the difference to the cost of goods sold in the period.
c) If the amount of provision to be made is lower than the remaining provision for devaluation of inventory in the previous year’s statement, the enterprise shall reverse the difference and record it as a decrease in the cost of goods sold in the period.
d) The level of provision for the devaluation of inventory shall be calculated for each kind of inventory and consolidated into a detailed list. The detailed list serves as a basis for accounting such provision into the cost of goods sold (production costs of all products and goods sold in the period) of the enterprise
Thus, making provisions for the devaluation of inventory in Vietnam shall comply with the above regulations.
What are the regulations on handling inventory for which provisions have been made in Vietnam?
Under Clause 4 Article 4 of Circular 48/2019/TT-BTC on handling inventory for which provisions have been made:
"Article 4. Provisions for devaluation of inventory
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4. Handling inventory for which provisions have been made:
a) Inventory which is unsold due to natural disaster, epidemics, fires, damage, being out-of-date, outmoded, expired or no longer usable must be destroyed or liquidated.
b) Handling entities:
The enterprise shall set up a handling council or hire a consulting valuating organization to determine the value of the inventory which needs to be destroyed. The value of the deteriorated inventory, reasons of deterioration, types, quantity, the recoverable value of inventory (if any) shall be listed on the inventory handling report of the enterprise.
Based on the minutes of the handling council or recommendations of the hired consulting organization and other related documents, the Board of Directors, the Board of Members, the President, the General Director, Director, the enterprise owner or the owner of a business organization shall decide the handling of those related to such inventory and be responsible for their decisions to law.
c) The actual irrecoverable value of each kind of unsold goods is the difference between the book value and the value recovered from compensations paid by persons who caused damage to the goods, insurance agencies or goods liquidation.
The remaining actual irrecoverable value of unsold goods for which a destruction decision has been issued, after being offset by the provision for devaluation of inventories, will be recorded as the cost of goods sold of the enterprise.
Thus, handling inventory for which provisions have been made in Vietnam shall comply with the above regulations.
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