Vietnam: Determination of provisions for devaluation of inventory at enterprises

02:37, 10/07/2024

Recently, Circular 48/2019/TT-BTC has been issued by the Minister of Finance of Vietnam, providing guidance on making and settlement of provisions for devaluation of inventory, losses on financial investments, bad debts and warranty at enterprises.

The provisions for devaluation of inventory at enterprises are guided by Article 4 of Circular 48/2019/TT-BTC of the Ministry of Finance of Vietnam as follows:

provision for inventory devaluation, Circular 48/2019/TT-BTC

Illustration (source internet)

* 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.

* 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

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 of the Ministry of Finance of Vietnam.

- Net realizable value means the estimated selling price of inventory in a normal production and business period at the time of making a financial statement minus (-) the estimated cost for finishing the products and the estimated sale expenses.

Other provisions can be found in Circular 48/2019/TT-BTC of the Ministry of Finance of Vietnam, effective from October 10, 2019.

Thu Ba

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