Decision No. 507-TC/ĐTXD on the Management and Depreciation of Fixed Assets

Pursuant to …;

ISSUED BY THE MINISTRY OF FINANCE DECREE NO. 507-TC/ĐTXD ON JULY 22, 1986

ADOPTING THE REGIME FOR MANAGEMENT AND DEPRECIATION OF FIXED ASSETS

AND SETTING THE RATE OF DEPRECIATION OF FIXED ASSETS.

THE MINISTER OF FINANCE

Pursuant to Decree No. 61-CP dated March 29, 1974 of the Council of Ministers on the charter of organization and operation of the Ministry of Finance;

Pursuant to Decision No. 90-CP dated April 18, 1978 of the Council of Ministers and Decree No. 132-HĐBT dated August 13, 1982 of the Council of Ministers on the amendment of the organizational structure of the Ministry of Finance;

Pursuant to Decision No. 76-HĐBT dated June 26, 1986 of the Council of Ministers on the temporary regulations regarding financial autonomy for economic grassroots units and the assignment to the Ministry of Finance to issue the regime for management and depreciation of fixed assets applicable uniformly across all sectors;

DECISION:

Article 1.- NOW ISSUES the regime for management and depreciation of fixed assets and the set of depreciation rates for fixed assets attached hereto, applicable uniformly to all sectors, levels, and grassroots units nationwide under state management.

Article 2 - Ministries, State Committees, other agencies under the Council of Ministers, Party and mass organizations, People's Committees of provinces, cities, and special zones shall, based on the regime for management and depreciation of fixed assets and the set of depreciation rates for fixed assets, be responsible for specifying the objects and conditions for application in accordance with the characteristics and circumstances of each sector and locality, after obtaining the consent of the Ministry of Finance.

Article 3. - This regime for management and depreciation of fixed assets and the depreciation rates for fixed assets shall be applied from the date when the state announces the implementation of the restored asset value for fixed assets following the general inventory and revaluation of fixed assets at 00:00 on October 1, 1985.

All previous regulations on the management and depreciation of fixed assets that conflict with this regime are hereby abolished.

Article 4. - Ministries, State Committees, other agencies under the Council of Ministers, Party and mass organizations, People's Committees of provinces, cities, and central-affiliated special zones shall be responsible for organizing the implementation and supervising the enforcement of the regime for management and depreciation of fixed assets in units under their jurisdiction.

REGULATIONS

MANAGEMENT AND DEPRECIATION OF FIXED ASSETS.

(ISSUED TOGETHER WITH DECISION NO. 507-TC/ĐTXD

DATED JULY 22, 1986 OF THE MINISTRY OF FINANCE).

I- FIXED ASSETS

Article 1. - Fixed assets are production tools and assets used over multiple production and business cycles and other activities while maintaining their original physical form. During usage, the value of fixed assets gradually depreciates, being transferred in part according to the degree of wear and tear into the value of produced products, recovered through depreciation in product costs, or compensated by the state budget to restore fixed assets for administrative and public service agencies.

For ease of management, it is now stipulated that production tools and assets meeting both of the following criteria shall be considered fixed assets:

- Machinery, equipment, factories, warehouses, land transport vehicles, waterway, air, and railway transportation means, infrastructure of these means, communication facilities, shops, and internal equipment directly or indirectly serving production and business activities, valued at 10,000 dong or more.

- Usage period of one year or longer.

Article 2. - The following assets may be priceless or have an indeterminate value but are still considered fixed assets:

- Assets assembled into stable combinations (in one or several buildings of public institutions such as museums, libraries, cultural centers, clubs, cinemas, theaters...).

- Exhibited items, artworks, and book collections in libraries, along with accompanying equipment like cabinets, stands, tables and chairs, tape recorders, air conditioners, fans, lights... serving exhibition purposes in museums, libraries, cultural houses, clubs.

- Cultivated land area for growing staple food crops, industrial crops, fruit orchards to produce goods.

- Forest area planted and managed for harvesting.

- Pond and lake areas for fish farming, lotus cultivation, vegetable planting.

- Livestock raised for work and product (fur, milk...) production, breeding livestock for reproduction, producing goods.

Article 3. In addition to the assets mentioned in Article 1 and Article 2, the following investment expenditures in enterprises, enterprise associations, companies, conglomerates... (hereinafter referred to collectively as enterprises) shall be considered fixed assets:

- Investment cost for purchasing patented designs.

- Investment cost for land reclamation.

- Investment cost for land improvement.

- Investment cost for river dredging, channel excavation, port, reservoir...

- Investment cost for earth and rock removal in construction and mine preparation (preparation for mining).

- Investment cost for exploration in certain industries such as oil and gas, geology, hydropower...

Article 4. - The following assets do not belong to fixed assets:

- Machinery and equipment that are goods produced by enterprises and stored in the enterprise's warehouse or technical supply agency before being supplied to consuming units.

- Completed machinery and equipment installations (or unassembled equipment still in storage) that have not yet been handed over for production or use.

- Machinery and equipment used as objects for research, analysis, and experimental testing.

Article 5. - Fixed assets recognized as objects for monitoring and management may be individual assets with independent structures performing specific functions, or systems consisting of multiple parts connected to the main part forming a whole entity performing comprehensive functions.

The value of fixed assets includes costs such as purchase price, transportation costs, construction costs, installation costs, preservation and maintenance costs, and other necessary costs according to the final settlement of investment capital approved by the competent authority.

II- DEPRECIATION AND AMORTIZATION OF FIXED ASSETS

Article 6. - During the process of production and use, fixed assets suffer depreciation. The degree of depreciation is reflected in accounting books through absolute values and percentages corresponding to the depreciation rates recorded in the standard depreciation rate tables for fixed assets. Depreciation rates are calculated as percentages relative to the initial value (or restored value) of the fixed asset, divided into basic depreciation and major repair depreciation. These rates apply to each type of individual fixed asset or to groups of similar fixed assets uniformly across all production and business units in all sectors of the national economy, regardless of the source of investment capital (state budget funds, bank credit, enterprise own capital...).

Article 7. - To form a fund to meet the needs for repairs, restoration, renovation, and expansion of fixed assets, enterprises must carry out depreciation including basic depreciation and major repair depreciation. The amount of depreciation is included in the cost of products and business expenses and can be retained partially or entirely by the enterprise as its own capital for basic construction investment.

Article 8. - Due to technical characteristics and management requirements, the following fixed assets only undergo basic depreciation and not major repair depreciation:

- Technical books, standardized design drawings, invention patents.

- Expenditures for exploration, land reclamation, afforestation, land improvement, earth removal for construction and mine development.

- Long-term industrial crops and fruit trees.

- Livestock used for plowing, pulling, or producing goods or for breeding purposes.

Basic depreciation must continue during the period when fixed assets are idle for major repairs due to both objective and subjective reasons (except in cases where idleness is due to decisions by authorized agencies as stipulated in Article 10 below).

Article 9. - The following fixed assets do not undergo basic depreciation:

- Farmland, planted forests, rivers, streams, ponds serving common social needs.

- Bridges, culverts, roads, dams.

- Expenditures for dredging riverbeds, channels, ports, lakes, and marshes.

Article 10. - The following fixed assets do not undergo basic depreciation or major repair depreciation:

- Special reserve fixed assets as decided by the Chairman of the Council of Ministers.

- Fixed assets placed in storage for more than one year (based on the planning year), approved by the Minister (for central enterprises) or the Chairman of the People's Committee of the province (for local enterprises).

- Fixed assets of administrative, public service, defense, and security agencies (excluding economic accounting units).

- Dikes, dams, roads, bridges, forests... serving common social needs without directly supporting production and business activities of a single unit.

Article 11. - Enterprises may continue to carry out basic depreciation and include it in the product cost for fixed assets that have completed basic depreciation but are still in use. This depreciation amount is included in the enterprise's production development incentive fund.

Article 12. - For fixed assets that have not completed basic depreciation and are damaged by the enterprise and cannot be used for production and business activities anymore, the enterprise must continue to pay the remaining undepreciated value from the production development incentive fund to repay the bank (for fixed assets invested with credit funds) or from the enterprise's own capital for basic construction investment (for fixed assets invested with state budget funds) without including it in the product cost. In cases where fixed assets are destroyed by natural disasters or enemy sabotage and cannot be used for production and business activities anymore, the superior management agency shall establish a liquidation review board according to current regulations.

Article 13. For specialized fixed assets used for underground mining operations or auxiliary works in basic construction projects, if their utility and lifespan exceed the duration of the work they serve, after completion of the work, if these fixed assets cannot be used for other purposes, the basic depreciation rate is calculated based on the planned volume of production or the time period the fixed assets must serve.

III- ALLOCATION OF DEPRECIATION AND CALCULATION INTO PRODUCT COST

Article 14. - All fixed assets put into use during the planning year must undergo depreciation (basic depreciation and major repair depreciation). Enterprises whose fixed assets do not fully utilize their designed capacity due to objective reasons may allocate basic depreciation into product costs based on the annual production plan compared to the designed capacity, but the minimum allocation must be at least 50% of the required full depreciation rate.

Article 15. - In cases where basic depreciation has been deducted and included in product costs at the minimum level (50%) but still results in increased wholesale industrial prices, enterprises must report annually when preparing financial plans to their superior management authorities. The superior management authorities of the enterprises shall discuss and agree with the same-level financial authorities to determine a reasonable deduction rate consistent with the state-regulated product price levels. If the large-scale repair depreciation rate according to the prescribed ratio and actual usage of fixed assets is insufficient to cover costs, the enterprise is permitted to deduct additional amounts and include them in product costs to meet annual large-scale repair needs.

Article 16. - For seasonal production enterprises, the total amount of depreciation for fixed assets that must be deducted and included in product costs during the year must be fully accounted for.

Article 17. - The depreciation rate for fixed assets is established under normal operating conditions. In cases where similar fixed assets are used under more difficult conditions, the rate is multiplied by a factor of 1.2, and under more favorable conditions, it is multiplied by a factor of 0.8.

Article 18. - The period for depreciation deductions begins on the first day of the month following the month in which the fixed asset is put into use. The cessation of depreciation deductions begins on the first day of the month following the month in which the fixed asset is ordered for liquidation, placed in storage, or transferred elsewhere.

Article 19. - Depreciation deductions for leased fixed assets are carried out by the asset owner. The leasing unit must include lease costs in product costs, labor expenses, or business service fees.

Article 20. - For fixed assets not included in the set standard depreciation rates, Ministries, General Departments, Provincial People's Committees (under central administration) shall base their determination of depreciation rates for inclusion in product costs on the depreciation rates of comparable fixed assets with similar functions, capacities, and efficiencies.

IV- USE OF DEPRECIATION DEDUCTIONS

Article 21. - For fixed assets formed from state budget investment funds, enterprises may retain an average of 50% of basic depreciation (the specific deduction rate for each type of enterprise will be applied according to the regulations of the Ministry of Finance) to establish self-owned capital for basic construction investment aimed at gradually replacing or modernizing fixed assets; the remainder is submitted to the state budget. Once the initial state investment capital is fully depreciated, the enterprise may retain all basic depreciation deductions as self-owned capital for basic construction investment.

For fixed assets formed from enterprise self-owned capital, the enterprise may retain all basic depreciation deductions to establish self-owned capital for basic construction investment.

For fixed assets formed from bank loans, the enterprise may use all basic depreciation deductions from these fixed assets to repay bank loan principal. After repaying the debt, the enterprise may retain all basic depreciation deductions to establish self-owned capital for basic construction investment.

Article 22. - The retained basic depreciation amount is incorporated into self-owned capital for deepening investment or reconstructing the enterprise according to approved economic and technical justifications by the supervising ministry (or provincial people's committee). The enterprise enjoys a certain interest rate as stipulated by the bank.

Article 23. - Enterprise large-scale repair depreciation capital is deposited in banks. Enterprises have the right to use large-scale repair depreciation capital for periodic major repairs of fixed assets or to supplement self-owned capital for basic construction investment aimed at modernizing equipment and expanding the enterprise. If the repair fund is insufficient, the enterprise may borrow from the bank. The source of funds to repay the debt is subsequent large-scale repair depreciation deductions.

Article 24. - Annually, enterprises must prepare plans for major repairs of fixed assets together with production-technical-financial plans and submit them to superior management authorities along with financial-banking-State Planning Committee counterparts at the same level for balancing necessary capital-material-labor resources for the enterprise's major repair work.

V- MOVEMENT, TRANSFER, AND LIQUIDATION OF FIXED ASSETS

Article 25. - When necessary and to enhance the effective use of fixed assets, the State may transfer fixed assets from one entity to another upon agreement between the entities. Internal transfers within a joint enterprise (holding company) or Ministry (General Department), or locality are decided by the head of the entity, or Minister (General Department Director), or Chairman of the People's Committee of the locality.

Transfers of fixed assets between Ministries, General Departments, localities, and between central and local entities require approval by the Prime Minister after obtaining consent from the enterprises and their superior management authorities.

Fixed asset transfers apply only within the state-owned economy sector.

Article 26. - Assets that are unused or deemed ineffective may be sold to other units by the entity, and the plan must be submitted for review by the Minister or the Chairman of the Provincial People's Committee (if it is a local enterprise).

Within thirty days (counted from the date of dispatch by the postal service), if the competent authority does not provide comments, the entity may proceed with the plan submitted.

The sale of fixed assets should first be conducted among units within the same industry or locality within the state-owned economy sector. If selling to entities outside the state-owned economy sector, approval from the Minister or the Chairman of the Provincial People's Committee (if it is a local enterprise) is required after consulting the same-level financial authority.

Article 27. - Fixed assets that are transferred or sold must be re-evaluated to determine their original cost and residual value in accordance with the acquisition costs of fixed assets and the degree of depreciation at the time of transfer. The original cost and residual value of the fixed assets thus re-evaluated shall serve as the basis for the transfer and settlement between the transferring and receiving parties.

Article 28. - The entity receiving the fixed assets through transfer or sale must pay the transferring entity the amount corresponding to the residual value of the fixed assets as stipulated in Article 27.

For fixed assets formed from state budget investment funds, the revenue obtained from transferring such fixed assets must be fully remitted to the state budget.

Revenue from selling fixed assets must also be remitted to the state budget. In cases where it is necessary to retain part or all of this revenue to supplement self-owned capital for basic construction investment, the entity must obtain approval from the authority that permitted the sale and the financial department at the same level.

For fixed assets formed from self-owned capital of the entity and bank credit, the entity may retain the entire revenue from transferring and selling these assets to supplement self-owned capital for basic construction investment and to repay bank loans.

Article 29. - Fixed assets that are no longer usable, or still usable but deemed ineffective, the enterprise must prepare a liquidation plan to submit to the superior management authority. After thirty days (counting from the date of dispatch by the postal service), if there is no response from the superior management authority, the enterprise may liquidate the fixed assets according to the submitted plan.

All revenues and expenditures arising during the liquidation process of fixed assets shall be recorded in accordance with the current accounting regulations. Any difference between revenue and expenditure, where revenue exceeds expenditure, shall be allocated to the development incentive fund; where expenditure exceeds revenue, the production development fund shall be used to cover the deficit.

VI- IMPLEMENTATION PROVISIONS

Article 30. - The management system for fixed assets, depreciation, and the established depreciation rates shall be implemented from the date when the state announces the restored value of fixed assets following the comprehensive inventory and revaluation of fixed assets at 00:00 on October 1, 1985.

Previous documents concerning the management of fixed asset depreciation that conflict with this regulation are no longer valid.