Circular No. 36-TC/TCDN guides the basic depreciation system for fixed assets in state-owned enterprises.

CIRCULAR
MINISTRY OF FINANCE DECREE NO. 36 TC/TCDN DATE APRIL 27, 1995
GUIDELINES ON THE BASIC DEPRECIATION SYSTEM FOR FIXED ASSETS IN STATE ENTERPRISES
IMPLEMENTING THE PRIME MINISTER’S DECISION NO. 51/TTg DATED JANUARY 21, 1995 ON THE BASIC DEPRECIATION SYSTEM FOR FIXED ASSETS IN STATE ENTERPRISES. The Ministry of Finance guides the establishment and utilization of basic depreciation funds at state enterprises as follows:

1. The basic depreciation system for fixed assets in state enterprises applies to all existing fixed assets directly managed and used by state enterprises from all sources of investment: State, bank loans, and other domestic and foreign entities, aid, gifts, joint ventures, joint operations... (excluding leased fixed assets).

I. GENERAL PROVISIONS.

2. The rate of basic depreciation of fixed assets calculated as a percentage according to the regulations of the Ministry of Finance on the original value of fixed assets, recorded in the enterprise's accounting books. This rate is applied to each type of fixed asset (or each group of similar fixed assets).

3. Actual large repair costs of fixed assets are directly accounted for in the enterprise’s expenses. For special assets, if large repair costs are accrued based on actual expenditures affecting the business results of the enterprise inaccurately, they may be accrued in advance or gradually allocated after obtaining written agreement from the financial authority.

4. All fixed assets (tangible or intangible) in state enterprises invested from any source must be accrued for basic depreciation or not accrued for basic depreciation, and must be mobilized, utilized, and managed according to the current fixed asset management system.

5. While the State has not reassessed fixed assets, state enterprises need to review the original value of each fixed asset, develop appropriate adjustment plans to align with the current price level, report to the financial authority for consideration and decision.

6. The following terms in this Circular are understood as follows:

- Tangible fixed assets: are fixed assets with physical form, meeting the prescribed standards for value and usage time, including: buildings, land, structures, machinery and equipment, transportation means, tools, transmission, measuring, communication, computing devices, management-related machinery and equipment... and other tangible assets.

- Intangible fixed assets: are fixed assets without physical form, representing a quantity of value already invested, or rights, privileges of the enterprise participating in production and business activities and other activities of state-owned enterprises, such as: costs for establishing the enterprise, preparation costs for production, invention patents, trademark rights, land clearance, restoration, land improvement costs, land use rights, channel dredging, port, river mouth costs... and other intangible assets.

- Leased fixed assets: are fixed assets purchased under a long-term lease contract through installment payments. When the lease period ends and the total lease payments equal the value of the leased fixed asset, it becomes the property of the lessee.

- State capital: is capital owned by the State, including: capital invested by the State Budget, capital with origins from the State Budget, capital supplemented by state enterprises according to State regulations.

II. SPECIFIC PROVISIONS ON THE ESTABLISHMENT OF BASIC DEPRECIATION FUNDS.

1) Fixed assets subject to basic depreciation.

- All fixed assets of state enterprises must be put into use, including tangible and intangible fixed assets, and must accrue basic depreciation, recovering sufficient capital based on accurately and fully calculating the original value of fixed assets.

2) Fixed assets not subject to basic depreciation:

The following fixed assets are not subject to basic depreciation:

- Fixed assets that have been fully depreciated but are still usable.

- Leased fixed assets.

- Bridges, culverts, roads, dikes, forests (except seedling forests, resin-producing forests...) belonging to infrastructure serving common social needs, not directly serving the production and business activities of a state enterprise.

- Unused fixed assets awaiting relocation or storage for over one year, registered with the financial agency.

- Fixed assets formed from welfare funds of the enterprise not directly serving the production and business activities of the enterprise.

- The value of land or land use rights of the enterprise.

3) Rate of basic depreciation.

Until the rate of basic depreciation is revised, state enterprises continue to accrue basic depreciation according to Decision No. 507 TC/DTXD dated July 22, 1986 of the Ministry of Finance and other guiding documents revising and supplementing the basic depreciation rates of the Ministry of Finance.

- For intangible fixed assets: depending on the time of effectiveness of each type of intangible fixed asset, basic depreciation is accrued from when the fixed asset is put into operation (according to contract, commitment, or usage cycle).

- For leased fixed assets, during the usage period, the lessee must accrue basic depreciation according to the State regulations as a percentage of the original value of the fixed asset recorded in the lease contract to create a source for debt repayment.

- For fixed assets that have not yet been fully depreciated but are damaged, the enterprise must report to the financial authority for specific handling: If due to objective reasons (natural disasters, fires, enemy attacks...), the competent authority may decide to reduce the remaining undepreciated value of the fixed asset from the business capital or account it as business expense. If due to subjective reasons caused by the enterprise or individual, it must be deducted from the retained earnings of the enterprise or compensated by the individual.

4) Increase or decrease in the rate of basic depreciation of fixed assets.

a) Increase in the rate of basic depreciation: state enterprises are permitted to increase the rate of basic depreciation above the current rate provided that they do not incur losses in the following cases:

- Fixed assets with rapid technological progress requiring capital for renewal to avoid obsolescence affecting business.

- Enterprises using borrowed capital to construct or purchase fixed assets where the debt repayment period is shorter than the depreciation period of the fixed assets, and after utilizing all legitimate sources of capital within the enterprise (construction investment fund, production development fund...) to repay the debt but still fall short, can increase the rate of basic depreciation, but not exceeding the amount of debt to be repaid in the year according to the loan agreement.

- An enterprise using borrowed funds to construct or purchase fixed assets, where the debt repayment period is shorter than the depreciation period of the fixed assets, and after mobilizing all legitimate sources of capital within the enterprise (construction investment fund, production development fund, etc.) for debt repayment but still falls short, shall be permitted to increase the amount of provision for bad debts, but shall not exceed the amount of debt due for repayment in that year according to the loan agreement.

- The actual working regime of fixed assets exceeds the normal level due to the utilization of machine capacity, overtime, and additional machine hours to intensify labor and accelerate the replacement process of equipment.

The authority to decide on increasing the extraction for maintenance and repair of fixed assets is stipulated as follows:

+ If the increased extraction rate does not exceed 20% compared to the basic extraction rate, the enterprise's general director decides and reports in writing to the financial authority.

+ If the increased extraction rate exceeds 20% compared to the basic extraction rate, the enterprise must submit a plan to the financial authority for consideration and decision.

b) Reducing the basic depreciation rate: in principle, state-owned enterprises must comply with the provisions at points 1, 2, and 3 of Section II above: they may not reduce the depreciation rate for existing fixed assets. For some fixed assets invested by the State before 1990 that are no longer suitable for production and business operations under the market mechanism, if the depreciation of these fixed assets leads to losses, the financial authority will consider reducing the depreciation rate for each specific case (but not exceeding the incurred loss) based on the enterprise's proposal. If these fixed assets are financed through loans or raised funds, the enterprise decides on reducing the depreciation rate but must ensure timely debt repayment according to the agreement, contract (or commitment).

III. USE OF BASIC DEPRECIATION FUNDS

1) Implement Article 5 of Decision No. 51/TTg dated January 21, 1995 of the Prime Minister: starting from January 1, 1995, state-owned enterprises retain the entire basic depreciation fund of fixed assets funded by state capital for investment, replacement, and modernization of fixed assets.

Each year, state-owned enterprises and their supervisory authorities must register investment plans from retained basic depreciation funds with state planning agencies and financial authorities for procedural checks, investment targets, and monitoring of implementation.

2) Basic depreciation funds of fixed assets financed by bank loans and other domestic and foreign borrowings: state-owned enterprises can use them to create sources for debt repayment; after repaying all debts, if the asset continues to be used, no further depreciation shall be extracted according to Point 2, Section II of this Circular.

3) State-owned enterprises using basic depreciation funds for construction investments must follow the investment and construction management regulations issued together with Decree No. 177/CP dated October 20, 1994 of the Government.

4) Basic depreciation funds retained by state-owned enterprises during periods without investment needs can be used for production and business activities in accordance with the law, but must ensure capital preservation, payment of income from capital usage, and timely return when there is an investment need or upon a mobilization decision by the competent authority.

IV. MOBILIZATION OF BASIC DEPRECIATION FUNDS FOR FIXED ASSETS.

1) Mobilizing basic depreciation funds retained within the scope of economic and technical sectors organized under the holding company model: depending on the specific situation of member enterprises and concentrated investment requirements for industry development, the Board of Directors of the Holding Company may decide to mobilize the basic depreciation funds of member enterprises' fixed assets extracted in the year to establish an investment fund for the Holding Company to invest centrally in development projects within the industry.

2) Member enterprises whose basic depreciation funds are mobilized will have the Holding Company repay both principal and interest: the interest rate paid to enterprises whose basic depreciation funds are mobilized is determined by the Holding Company's Board of Directors based on the General Director's proposal, but it must not be lower than the average annual inflation rate published by the State and income from capital usage. Enterprises with mobilized basic depreciation funds still bear the responsibility for paying capital usage fees to the state budget and preserving capital according to current regulations.

3) Sources for repaying principal and interest to enterprises whose basic depreciation funds are mobilized come from the depreciation of new investment projects and their profits. During the investment period, if the project has not yet shown effectiveness, funds from loans will be used to repay enterprises whose basic depreciation funds are mobilized.

V. SETTLEMENT OF BASIC DEPRECIATION FUNDS

Annually, state-owned enterprises (including holding companies) must settle the establishment, use, and mobilization of basic depreciation funds with the state financial authority along with the settlement of production and business operations.

This Circular takes effect from January 1, 1995.