CIRCULAR

Regarding financial management for the production of secondary products from scrap materials and waste products and the utilization of excess labor at state-owned economic units.

From 1960 to the present, the Government has issued Circular No. 63 dated November 14, 1960, Directive No. 59-TTg dated April 4, 1967, and No. 69-TTg dated April 24, 1970, regulating the management and encouragement of the use of scrap materials and waste products to produce consumer goods. However, up to now, many factories still have unused scrap materials and waste products such as wood chips, cheap fabric scraps, paper scraps, etc., which are not being utilized rationally or are being discarded wastefully.

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From 1960 to the present, the Government has issued Circular No. 63 dated November 14, 1960, Directive No. 59-TTg dated April 4, 1967, and No. 69-TTg dated April 24, 1970, regulating the management and encouragement for the utilization of waste materials and by-products in the production of consumer goods. However, up to now, many factories still have unused waste materials and by-products such as wood scraps, cheap fabrics, paper scraps, etc., which have not been utilized reasonably or have been discarded wastefully.

To implement the Prime Minister's directive and to contribute to promoting the rational use of scrap materials and waste products while effectively utilizing excess labor, the Ministry of Finance hereby stipulates the financial management system and accounting procedures for the use of excess labor to produce secondary products from scrap materials and waste products.

To implement the Prime Minister's Directive and contribute to promoting the utilization of waste materials and by-products while effectively utilizing surplus labor, the Ministry of Finance hereby stipulates the financial management and accounting system for using surplus labor to produce secondary products from waste materials and by-products.

1/ The factory must regularly generate scrap materials and waste products and achieve the scrap material and waste product ratio prescribed by the State for various products.

2/ The organization of secondary product production must ensure that it does not affect the main production plan of the unit. The factory must primarily cover all costs through its own income, and strive to earn profits for the factory and accumulate funds for the State budget.

2. The organization of secondary product production must ensure that it does not affect the main production plan of the unit. The enterprise must primarily cover all costs with its own income, and strive to achieve profits for the enterprise and accumulate funds for the State Budget.

4/ The factory must develop its own plan for producing secondary products from scrap materials and waste products, which must be approved by the superior supervisory authority (the ministry for central enterprises, the department for local enterprises), and report to the financial authority, the State Bank, and the Planning Commission before commencing production.

4. Enterprises must develop their own plans for producing secondary products from waste materials and by-products, which must be approved by the superior supervisory authority (the Ministry for central enterprises, the Department for local enterprises) and report to the financial authority, the State Bank, and the Planning Commission before commencing production.

1. Fixed capital:

Factories should utilize surplus equipment and machinery or repair damaged equipment that is not needed for the main production line. Repair costs will be covered by the large-scale repair fund of the unit.

After fully utilizing existing equipment capacity, if additional equipment or machinery is required to meet production needs, the factory must thoroughly assess the investment return and use the following sources of funding:

After fully utilizing existing equipment capacity but still failing to meet production requirements, if new or additional machinery is needed, the enterprise must calculate the full investment effectiveness and use the following sources of capital:

+ Borrow from the State Bank, with the loan to be repaid using depreciation funds and development funds (a portion of the profit from products made from scrap materials).

In cases where significant investment is required to utilize scrap materials, waste products, and excess labor, the factory must prepare an economic and technical proposal according to current regulations to apply for a bank loan or submit to the competent authority for approval to obtain construction capital.

In cases where significant capital investment is required to utilize waste materials and by-products and surplus labor, the enterprise must prepare an economic and technical proposal according to current regulations to apply for a bank loan or submit it to the competent authority for approval to obtain construction capital.

Fixed asset management must comply with current regulations. If fixed assets created by the enterprise through bank loans are involved, the basic depreciation expenses of these fixed assets shall be used to repay the bank loan for construction investment.

Main raw materials for secondary product production are included in the working capital reserve for primary production, so factories must utilize existing working capital for production; if insufficient, the factory may borrow from the State Bank according to Resolution No. 19-CP dated January 29, 1976.

The primary raw material for producing secondary products is waste materials and by-products already included in the working capital reserve for main production, so enterprises must utilize existing working capital for production; if insufficient, the enterprise may borrow capital from the bank according to Resolution No. 19-CP dated January 29, 1976.

1/ Regarding consumption:

Secondary products produced must meet quality standards set by the direct supervisory authority; they must sign sales contracts with major products before production begins.

The principle of product consumption is to sell to first or second-level commerce. Only in exceptional circumstances, when commerce does not purchase, can they be sold to cooperatives for distribution to staff and workers, but reselling is prohibited.

The principle of product consumption is to sell to first or second-level trade. Only in cases where trade does not purchase can they be sold to cooperatives for distribution to cadres, workers, and staff for use, but reselling is prohibited.

The selling price of secondary products must comply with the state-set prices; the prices of waste materials and by-products used for producing secondary products must follow the principles stipulated in Joint Circular No. 42-TTLB/VGTC dated February 17, 1973, of the Price Control Committee and the Ministry of Finance. For secondary products without set prices, both parties should agree based on similar product prices and ensure coverage of production costs, circulation fees, and profit.

2/ All secondary products made from scrap materials and waste products must pay taxes or state revenue according to current regulations. During the initial period, if production costs remain high, leading to no profit or loss, the factory may request the financial authority to consider tax reduction or exemption. Cases eligible for tax reduction or exemption include:

+ Products with no profit,

During the initial period when production is unstable and cost prices are high enough to result in losses, the enterprise may request the financial authority to consider tax reduction or exemption. Tax reduction or exemption cases are as follows:

Tax exemptions for secondary products made from scrap materials and waste products are reviewed annually. The decision is made by the financial authority directly managing the factory after consultation with the ministry or general administration in charge (for central enterprises) or the department or bureau in charge (for local enterprises).

In special cases where production is organized to utilize excess labor, even after tax reduction or exemption, the production facility still incurs losses, the factory may use profits from main business operations to offset these losses and include them in the factory's profit and loss plan after approval by the financial authority.

The tax exemption or reduction for secondary products made from waste materials and by-products mentioned above will be reviewed annually. It will be decided by the financial authority directly managing the enterprise after consultation with the Ministry or General Administration in charge (for central enterprises) or the Department or Bureau in charge (for local enterprises).

In special cases where production is organized to utilize surplus labor, even after tax exemption or reduction, the production base still incurs losses, then after being reviewed by the financial authority, the enterprise may use profits from main business operations to offset losses and include them in the enterprise's profit and loss plan.

+ Full cost (including raw material, fuel, material costs, wages, depreciation of equipment, power, administrative expenses, etc.).

+ Taxes or state revenue according to current regulations.

Full cost (including raw material costs, fuel costs, material costs, wages, depreciation of equipment and power, management fees, etc.).

Taxes or state revenues levied according to the current regime.

Enterprises that complete the profit plan for basic business operations, fulfill the tax payment or state-owned revenue collection tasks for secondary products, comply with state regulations on the use of waste materials and by-products, and maintain clear accounting records, shall distribute the profits from secondary product sales according to the following preferential regime:

a/ In cases where secondary products are produced entirely from waste materials and by-products and existing equipment without requesting additional materials or equipment from the state, 80% of the profits earned shall be allocated to the enterprise's funds, and 20% shall be paid into the State Budget.

b/ In cases where secondary products are produced from waste materials and by-products but supplemented with some quality raw materials for production, 60% to 70% of the profits earned shall be allocated to the enterprise's funds, and 30% to 40% shall be paid into the State Budget.

c/ In cases where secondary products are produced from locally sourced agricultural, forestry, and mineral raw materials to address employment for surplus labor, 50% to 80% of the profits earned shall be allocated to the enterprise's funds (depending on the intensity of labor), and 20% to 50% shall be paid into the State Budget.

The portion of profits retained by the enterprise shall be distributed among the following funds:

+ Development incentive fund 50%

+ Welfare and reward fund 50% (each fund 25%).

- This preferential profit distribution regime applies only to units implementing direct economic accounting systems for organizing production of secondary products from waste materials and by-products and utilizing surplus labor. Units purchasing and consuming waste materials and by-products or organizing processing for external entities are not subject to this regime.

If the state equips enterprises with a complete production line for producing secondary products from waste materials and by-products, the use of profits earned shall follow the current financial regime for main production.

It is prohibited to use profits from by-product production using waste materials or other sources of capital to establish illegal funds (black funds).

IV. ACCOUNTING FOR THE USE OF WASTE MATERIALS AND BY-PRODUCTS IN PRODUCTION OF BY-PRODUCTS.

A. Tasks for Accounting the Use of Waste Materials and By-Products in Production of By-Products:

Utilizing waste materials and by-products to produce secondary products is part of industrial production within enterprises. Accountants must strictly adhere to accounting systems and responsibilities to avoid arbitrary actions that lead to wastage of state assets.

1/ Organize monitoring, reflecting, and closely supervising economic and financial activities related to by-product production in the following stages:

+ Receiving and delivering waste materials and by-products.

+ Calculating and accurately disbursing wages.

+ Accounting for production costs and calculating the cost of by-products.

+ Accounting for consumption, profits and losses, and amounts payable to the budget.

2/ Through accounting work, inspecting the situation of capital usage, the economic and financial efficiency of sideline business operations, tapping all potential capabilities of the enterprise, reducing costs, increasing both quantity and quality of sideline products to meet production and consumption needs.

3/ Adhere to national accounting systems and regulations regarding the use of waste materials and by-products in by-product production.

B. Methods for Accounting the Use of Waste Materials and By-Products in Production of By-Products.

1/ For all economic organizations within the national economy: The production of sideline products using waste materials is considered part of the production of goods and is directly accounted for on account 23 "by-product production" (detailed according to cost objects).

2/ In cases where economic units organize production and business outside their main activities such as livestock breeding departments in industrial enterprises, brick and tile production departments for sale in agricultural farms, etc., they shall be accounted for on account 30 "production and business outside main activities".

3/ Organizations responsible for producing sideline products are considered production workshops of the enterprise like other production workshops and do not have separate accounting systems, but the chief accountant must assign专人负责副产品的生产和会计，并对这些经营活动负责。

Accounting must be accurate, clear, and timely for economic and financial activities related to by-product production and trade.

- Establish bookkeeping records to reflect and supervise by-product production activities.

- Recording entries in accounting accounts as follows:

a/ Implement state regulations on material accounting; any waste materials or by-products generated from production, collected during finished product storage, goods handling, etc., must be appraised and recorded as waste inventory (account 05.7) and noted as:

Debit Account 05 - Raw Materials and Materials (05.7)

        Credit Account 20 - Main Production

        Credit Account 40 - Finished Products

        Credit Account 41 - Goods …

b/ When waste materials and by-products are issued for by-product production:

Debit Account 23 - By-product Production (detail)

       Credit Account 05 - Raw Materials and Materials (05.7)

If the cost structure of by-products includes primary and secondary raw materials purchased externally, the cost items will be recorded separately:

1. Waste materials and by-products used in production.

2. Primary raw materials.

3. Secondary materials …

c/ Other production costs such as wages, social insurance, depreciation of fixed assets, externally purchased power, etc., will be recorded as:

Debit Account 23 - By-product Production (detail)

       Credit relevant accounts

d/ When by-products are completed and inspected before being stored as finished products:

Debit Account 40 - Finished Products (detail)

       Credit Account 23 - By-product Production

e/ When by-products are issued for sale:

Debit Account 45 - Goods Sent Out, Completed Labor and Services. 

(When payment is received or it is determined that the goods have been sold, transfer to Account 46)

Or Debit Account 46 - Sales

          Credit Account 40 - Finished Products 

f/ When payment is received for the sale of by-products.

Debit account 51 - Bank deposits

       Credit Account 46 - Sales

Or Account 64 - Settlement with Buyers and Orderers

g/ Determining the results of by-product sales:

- In case of profit:

Debit Account 46 - Sales

There is Account 99 - Profit, Loss -

In case of loss:

Debit Account 99 - Profit, Loss

Credit Account 46 - Consumption.

h/ The profit from the sale of by-products retained by the enterprise:

- Establish enterprise funds:

Debit Account 80 - Capital Appropriation (details)

Credit Account 87 - Enterprise Funds (details)

- After approval of the final settlement report, record the profit from the sale of by-products:

Debit Account 99 - Profit, Loss

Credit Account 80 - Capital Appropriation

During implementation, ministries, sectors, and provinces need to regularly inspect, identify deficiencies, and promptly report to the Ministry of Finance for supplementation.