Principles for Adjusting and Excluding the Impact of Intra-Group Sales of Fixed Assets

Principles for Adjusting Exclusion of Internal Transactions Involving Fixed Asset Sales (illustrative image)

Clause 1, Article 27 of Circular 202/2014/TT-BTC stipulates the principles for adjusting to exclude the impact of internal transactions involving the sale of fixed assets. Specifically:

- All other income, other expenses, unrealized gains or losses arising from internal transactions involving the sale of fixed assets within the group must be completely excluded. In the consolidated financial statements, the carrying value of fixed assets (original cost, accumulated depreciation) must be adjusted as if no internal transaction involving the sale of fixed assets within the group had occurred.

- In cases where the fixed assets sold result in a profit, the depreciation expense being recognized in the standalone financial statement of the purchasing entity will be higher than the depreciation expense from the perspective of the entire group. Therefore, in the consolidated financial statements, the accountant must adjust to reduce the depreciation expense and accumulated depreciation due to the impact of internal transactions involving the sale of fixed assets within the group.

- When excluding unrealized profit in internal transactions involving the sale of fixed assets within the group, the carrying value of the fixed assets in the consolidated financial statements will be lower than its tax base. Therefore, the accountant must reflect deferred tax assets corresponding to the unrealized profit excluded from the fixed assets value. In the Statement of Comprehensive Income, the item "Deferred Corporate Income Tax Expense" must also be reduced by the amount corresponding to the deferred income tax arising from the exclusion of unrealized profit within the group. Deferred tax assets arising from the internal sale of fixed assets among units within the group will be gradually reversed each period when the accountant adjusts to reduce the group’s depreciation expense.

- In cases where the internal sale of fixed assets among units within the group results in a loss, the carrying value of the fixed assets from the group’s perspective will be higher than its tax base. Therefore, the consolidated financial statements must reflect the deferred tax assets corresponding to the unrealized loss included in the fixed assets value. The Statement of Comprehensive Income must reflect the increase in deferred corporate income tax expense corresponding to the increase in the group's profit. Deferred income tax arising from the internal sale of fixed assets among units within the group will be gradually reversed each period when the accountant adjusts to increase the group’s depreciation expense.

- In cases where unrealized profit or loss arises from a subsidiary's internal sale of fixed assets within the group, the accountant must determine the portion of the unrealized profit or loss to be allocated to non-controlling interests when determining non-controlling shareholder’s benefits and adjust for non-controlling interests.

For details, refer to Circular 202/2014/TT-BTC effective from February 27, 2015.

Ty Na

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