Hi Lawnet, I would like to ask some questions. What are fixed assets? What are the regulations on the straight-line depreciation method? - Quoc Hung (Tien Giang, Vietnam)
Article table of contents
Methods of the straight-line method of depreciation of fixed assets
1. What are fixed assets?
According to Clauses 1, 2, 3 and 4, Article 2 of Vietnam's Circular 45/2013/TT-BTC stipulating the following types of fixed assets:
- Tangible fixed assets: are means of labor primarily in the physical forms and satisfy the criteria of tangible fixed assets, involved in many business cycle but remain original physical forms as buildings, structures, machinery, equipment, means of transportation ...
- Intangible fixed assets: these assets are not physical forms, represents a value of the investment has to satisfy the criteria of an intangible asset, involved in many business cycles such as some costs directly related to land use; issuance right, patent, copyright ...
- Fixed assets of financial leasing are the assets which enterprises lease from financial leasing companies. At the end of the lease term, the lessee has the right to purchase the leased property or continues the lease under the terms agreed in the lease contract. The total rent of an asset type specified in the financial leasing contract must be at least equal to the value of that asset at the time of contract signing.
All leased assets if not meeting the above-mentioned regulations are considered as the operating leased fixed assets
- Similar fixed assets: are the ones with their similar utility in the same business area with equivalent value.
2. What is the straight-line depreciation method?
- According to Point a, Clause 2, Article 13 of Vietnam's Circular 45/2013/TT-BTC, the straight-line depreciation method is the method of depreciation by the rate of stability calculation of each year into the enterprises’ costs of business and production of the fixed assets involved in the business operation.
In which, the enterprises operating with high economic efficiency may accelerate their depreciation, but not more than 2 times of the depreciation rate by the straight-line method for rapid technological innovation.
The fixed assets involved in business activities and accelerated their depreciation are:
- Machinery and equipment;
- Experimental and measuring instruments,
- Equipment and means of transport,
- Management tools, animals, perennial orchards
When performing accelerated depreciation, the enterprises must ensure profitable business.
In case the enterprises accelerate their depreciation exceeding 2 times of the rate specified in time frame for use of fixed assets provided for in Appendix 1 attached to Vietnam's Circular 45/2013/TT-BTC, he excess of accelerated depreciation (over 2 times) is not included in the reasonable costs upon calculation income tax in the period.
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Appendix 1 |
3. Contents of the fixed asset line depreciation method
The contents of the fixed asset line depreciation method in Appendix 2 issued together with Vietnam's Circular 45/2013/TT-BTC are as follows:
* The fixed assets in the enterprises are depreciated by the straight-line depreciation. Determining the annual average rate of depreciation for the fixed assets by the following formula:
Annual average rate of depreciation for the fixed assets = Primary price of fixed assets / Time of depreciation
* Monthly average rate of depreciation equal to the yearly depreciation divided by 12 months.
* In case the time of depreciation or the primary price of the fixed assets changes, the enterprise have to re-determine the average rate of depreciation of the fixed assets by taking the Residual value in the accounting book divided by the time of depreciation re-determined
Or remaining time of depreciation (determined as the difference between the time of depreciation registered minus the time of depreciation) of the fixed assets.
* The rate of depreciation for the final year of the time of depreciation of fixed assets is determined as the difference between the primary price of fixed assets and the accumulated depreciation made to the preceding year of the final year of those fixed assets.
* Determination of rate of depreciation for fixed assets put into use before October 01, 2013:
- Way to determine the rate of depreciation:
+ Based on the data in the accounting books and records of fixed assets to determine their Residual value in the accounting books of fixed assets.
+ Determining the remaining time of depreciation of fixed assets by the following formula:
In which:
T : Remaining time of depreciation of fixed assets
T1 : Time of depreciation of fixed assets is determined under provisions of Annex 1 issued together with Vietnam's Circular 203/2009/TT-BTC.
T2 : Time of depreciation of fixed assets is determined under provisions of Annex 1 issued together with Vietnam's Circular 45/2013/TT-BTC.
t1 : Actual time of depreciation of fixed assets
- Determining the annual rate of depreciation (for the remaining years of fixed assets) as follows:
Annual average rate of depreciation of fixed assets = Residual value of fixed assets / Remaining time of depreciation of fixed assets
- The monthly average rate of depreciation equal to the yearly depreciation deduction divided by 12 months.
Quoc Dat
