Circular No. 76-TC/TCDN guiding the management regime for revenue, expenses, and product/service cost at state-owned enterprises

MINISTRY OF FINANCE ********	SOCIALIST REPUBLIC OF VIETNAM Independence - Freedom - Happiness ********
NUMBER: 76-TC/TCDN	HA NOI, November 15, 1996

 

CIRCULAR

DIRECTIVE NO. 76 TC/TCDN OF THE MINISTRY OF FINANCE ON NOVEMBER 15, 1996 GUIDING THE MANAGEMENT REGIME FOR REVENUE, EXPENSES AND COST OF PRODUCTS AND SERVICES AT STATE ENTERPRISES

Pursuant to Decree No. 59/CP dated October 3, 1996 of the Government promulgating the "Regulation on Financial Management and Business Accounting for State Enterprises"; the Ministry of Finance guides the management regime for revenue, expenses and cost of products and services at state enterprises as follows:

II- SUPPORT MEASURES FOR STATE-OWNED AGRICULTURAL FARMS AND FORESTRY COMPANIES IN THE FIELD OF SCIENCE AND TECHNOLOGY

1. State-owned enterprises must organize strict management of all revenue, expenses, and production costs of products and services to enhance business efficiency.

2- Enterprises must accurately and fully calculate business expenses, self-finance all expenses from revenues, and bear responsibility for the results of their business operations.

3- Based on economic and technical norms and financial regimes issued by competent authorities, enterprises must:

- Develop and continuously improve their economic and technical norm system in accordance with their specific circumstances.

- Strictly comply with current financial expenditure regimes and state accounting and statistics regimes.

4- The Board of Directors, General Director or Director (for enterprises with a Board of Directors), and Director (for enterprises without a Board of Directors) are responsible before the State and the law for the accuracy and legality of the enterprise's revenue, expenses, and business results.

5- In this Circular, the following terms are understood as follows:

- Payment discount is the amount of money that the seller reduces for the buyer due to the buyer paying the purchase price of products, goods, or services of the enterprise before the payment deadline and clearly stated on the sales invoice or economic contract.

- Sales discount is the amount of money that the seller reduces for the buyer based on the agreed price due to sold products being of poor quality, not meeting specifications, or exceeding the quantity specified in the economic contract, or providing customer discounts for purchasing large quantities of products, goods, or services from the enterprise.

- Value of returned goods: Is the value calculated according to the payment price of the products, goods, or services that the enterprise has sold but were returned by customers due to breaches of conditions committed in the economic contract such as: Poor product quality, incorrect specifications, types...

- Commission for agents is the amount paid by the enterprise to agents for the sale of its products, goods, or services.

- Brokerage commission is the amount paid to economic organizations, collectives, or individuals acting as brokers in the purchase and sale of materials, products, or service provision for the enterprise's business operations.

II- SPECIFIC MANAGEMENT REGULATIONS

A. REVENUE MANAGEMENT:

Revenue of state enterprises includes revenue from business activities and revenue from other activities:

1- Revenue from business activities is the total money received from selling products, goods, supplies, and services after deducting trade discounts, sales discounts, and returned goods (if there is valid documentation) and accepted by customers for payment (regardless of whether the money has been collected or not).

Business revenue of enterprises also includes:

+ Subsidies and surcharges according to state regulations for use by the enterprise for goods and services consumed during the period as permitted by the state.

+ The value of products and goods given away, gifted, or used internally by the enterprise such as: Using finished cement for construction and repair at a cement production factory, using finished fabric for protective clothing at a textile factory, etc.

- Enterprises must base prices on market prices at the time of sale or service provision.

- Trade discounts or sales discounts must be determined according to the following provisions:

+ Enterprises must establish and publicly announce management regulations for trade discounts and sales discounts.

+ Trade discounts or sales discounts for the quantity of goods sold during the period (excluding goods in surplus stock, of poor quality, or deteriorated) must ensure that the enterprise operates profitably.

+ Clearly stated in economic contracts and sales invoices.

The enterprise director has the authority to decide and is responsible for the aforementioned deductions.

- Returned goods must have a written document from the buyer specifying the quantity, unit price, and value of the returned goods batch accompanied by documentation for re-stocking the returned goods batch.

2. Revenue from other activities includes revenue from financial investment activities and extraordinary activities:

a) Revenue from financial investment activities includes revenue from joint venture and associated activities, capital contributions, asset leasing, interest income from deposits, interest income from loans, revenue from securities trading (bonds, bills, stocks), recovery of securities depreciation reserves previously set aside but not fully utilized...

b) Revenue from extraordinary activities includes revenue from non-recurring activities outside those specified in points 1 and 2a of Section A such as: revenue from selling excess materials, goods, assets, tools, and equipment that have been fully depreciated, damaged, or no longer needed, revenue from uncollectible debts, revenue from transferring and liquidating assets, recovered revenue from previously written-off bad debts, recovery of inventory and receivables depreciation reserves previously set aside but not fully utilized, and other extraordinary revenue...

All revenue generated by the enterprise during the period must be reflected on valid invoices and documents and recorded fully in accounting books according to the state-regulated system. The enterprise is responsible for identifying and recording tax revenue for each type of activity according to the provisions of the Tax Law, Decrees, and current guiding circulars.

- Revenue and income not recorded in accounting books must be fully remitted to the state budget and penalized according to current regulations. Individuals or groups violating or involved will be held accountable, required to compensate, and subject to administrative penalties, and in serious cases, criminal responsibility will be pursued.

B. MANAGEMENT OF EXPENSES AND COSTS

Enterprise expenses include business operation expenses and other expenses.

B.1- Management and Cost Control of Business Activities:

Business activity costs include costs related to the enterprise's business operations such as raw material, fuel, and power costs; depreciation of fixed assets; wages and wage-like allowances; social insurance, health insurance, and trade union fees as prescribed by the state; external service costs; and other monetary costs. The management and accounting of costs are regulated as follows:

1. Material costs, raw materials, fuels, power... (hereinafter referred to as material expenses) must be strictly managed in two stages: the rate of material consumption and the price of materials.

a) Material consumption rates:

- The General Director or Director (for enterprises with a Board of Management) or Director (for enterprises without a Board of Management) must base on the material consumption quotas issued by competent authorities and the specific situation of the enterprise to establish the enterprise's material consumption quota system to be submitted for approval by the Board of Management (for enterprises with a Board of Management) or the Director (for enterprises without a Board of Management) and bear responsibility for the accuracy of these quotas.

Materials used in business operations must be strictly managed according to the enterprise's established consumption standards in the stages of storage, distribution, and settlement.

- Enterprises must monitor, inspect, organize analysis of the implementation of material consumption quotas regularly and periodically to propose measures to continuously improve the quota system, promptly commend and reward groups and individuals who use materials economically and handle cases of material consumption exceeding quotas.

- At the end of the fiscal year, enterprises must settle material accounts.

- The material settlement report must be sent to the founding agency of the enterprise and the state capital and asset management agency at the enterprise. It must clearly reflect the following main contents:

+ The actual rate of material consumption of the reporting year compared to the quota and the actual rate of the previous period for each type of product.

+ Total consumption and total variance.

+ Analysis and evaluation of the management and use of various materials, clearly identifying the reasons for increases (decreases) compared to the quota and the previous actual period, recommending measures to address...

b) Material prices: Used for accounting and determining material costs are actual prices, including:

- The purchase price of external materials includes: the amount payable recorded on the seller's invoice (if the materials are imported goods paid in foreign currency, they must be converted to Vietnamese currency according to the exchange rate published by the State Bank of Vietnam at the time of import, plus import tax and additional fees - if applicable), plus procurement costs such as: transportation costs, handling fees, storage fees, insurance fees, reasonable losses during transit, warehouse rental fees, pre-storage processing fees (if applicable), sorting and recycling fees.

- The price of self-manufactured materials includes: the actual cost of materials issued from inventory plus the actual costs incurred during the manufacturing process.

- Outsourced processing material prices include: Actual material prices from inventory for outsourcing plus processing fees such as transportation fees, handling fees, insurance fees, and fees paid to the processor.

- The inventory price of materials: is the actual price of materials at the beginning of the period.

- The prices of various materials and processing, transportation, storage, procurement costs... mentioned above must have valid invoices and documents in accordance with the regulations of the Ministry of Finance. In case the materials are agricultural, forestry, aquatic products... purchased directly from producers, the buyer must clearly record the name, address of the seller, quantity of goods, unit price, total amount, signature of the seller, approval by the enterprise director for payment and bear full legal responsibility.

c) For tools and equipment used in business operations such as molds, scaffolding, scales, racks, tables and chairs, handheld computers... enterprises must base on the usage period and value of the tools and equipment to gradually allocate them into expense items in each business period according to appropriate methods.

d) The actual material consumption value after deducting compensation payments from individuals or groups causing excess material consumption and the value of recovered scrap (if any) is recorded in material expenses.

2- Depreciation costs of fixed assets:

All fixed assets of enterprises must be utilized in business activities and depreciation must be fully accrued according to state regulations to recover capital. After fully recovering the capital, if the fixed assets can still be used, the enterprise does not need to accrue further depreciation, but must still manage and use them according to current regulations.

3- Labor costs and allowances of a wage nature:

Enterprise labor costs include wages, salaries, and allowances of a wage nature that must be paid to workers participating in the enterprise's business activities.

In principle: wages must be strictly managed and disbursed for their intended purpose, linked to production and business results based on approved labor quotas and reasonable wage rates.

a) Regarding labor quotas:

- Enterprises must base on standard labor quotas issued by competent authorities and the actual conditions of the enterprise to establish and continuously improve labor quotas, and arrange sufficient numbers and structures of labor suitable for job requirements.

- Methods of establishing, authority to approve, and registration of labor quotas must be implemented in accordance with current regulations.

b) Regarding wage rates:

- Based on registered labor quotas and state wage systems, enterprises must establish wage rates to be submitted for approval by competent authorities.

- Methods of establishing, authority to approve, and registration of wage rates must comply with current regulations.

c) Establishment and use of wage funds:

The establishment and use of wage funds must be based on planned wage rates registered and the business performance achieved by the enterprise in the period according to the following principles:

- For enterprises operating without profit, unable to maintain capital, the total wage fund allowed to be extracted and disbursed shall not exceed the basic wage fund calculated as follows:

+ The actual number of workers participating in the enterprise's production and business activities, including: staff within the establishment, short-term and long-term contracts, temporary workers.

+ Coefficients and levels of salary grades, contract-based salaries, coefficients and levels of allowances as prescribed by the state.

- For enterprises operating with profit, achieving high profit rates on state capital, and making significant contributions to the state budget, the enterprise is allowed to extract and disburse a wage fund corresponding to its business performance, but must ensure the following conditions:

+ Maintain capital and not request reduced depreciation or reduced payments to the state budget.

+ The growth rate of the wage fund must be lower than the growth rate of the profit margin on state capital calculated as the average between January 1 and December 31 of the same year.

- An enterprise shall not use the wage fund for purposes other than paying wages and compensation tied to labor outcomes.

d) Settlement of the wage fund:

Each year, the enterprise must settle the wage fund with the founding agency, the state capital and asset management agency, and the tax authority. The settlement of the wage fund must assess:

+ The rationality of the labor quota system.

+ The rationality of the approved wage rate.

+ The situation of setting up and using the wage fund.

- All expenditures from the wage fund that are misused or improperly deducted must be recovered and fully remitted to the state budget. 4- Social insurance costs, health insurance costs, and trade union fees:

Social insurance costs, health insurance costs, and trade union fees are calculated based on the enterprise's wage fund according to current state regulations.

5- External service expenses:

These include expenses for repairing leased fixed assets, electricity and water costs, telephone charges, loading and unloading fees, transportation costs for goods and products, commission payments to agents and brokers, export and import commissions, insurance premiums for assets, auditing and consulting fees, advertising fees, and other external service expenses.

These expenses must be recorded based on actual occurrences, approved by the director, and the director is responsible for such decisions.

+ Agent commissions and entrusted commissions must be reflected in agency and entrustment contracts and can only be recorded based on actual payments, supported by valid documentation.

+ For brokerage commissions: enterprises must establish expenditure standards and management rules linked to economic efficiency generated by brokerage activities. Brokerage commissions cannot be applied to agents of the enterprise, designated customers, managerial positions within the enterprise, or employees responsible for supplying materials and selling products.

+ For large-scale repair expenses aimed at restoring the capacity of fixed assets, the actual repair costs are recorded as business expenses in the year they occur. If the repair expense is exceptionally high, it may be allocated over subsequent years. For special fixed assets requiring periodic major repairs, the enterprise may pre-record the anticipated repair costs as business expenses based on a budget approved by the state capital and asset management agency. If the pre-recorded amount is less than the actual cost, the difference is recorded as an additional expense; if higher, it reduces the expense for the year.

Upon completion of repairs, the enterprise must settle accounts based on the approved budget, signed economic contracts, and actual reasonable and legitimate expenses incurred.

6- Other monetary expenses:

These include expenses outside those specified in points 1-5 of Section B1, such as license fees, land use taxes or rent, resource taxes, bridge tolls, hospitality and ceremonial expenses, advertising and marketing expenses, foreign transactions expenses, conference expenses, recruitment expenses, military training expenses, knowledge enhancement allowances for staff, occupational safety expenses, interest on business loans, allowable loss provisions, product warranty expenses, contingency reserves, contributions to总公司管理基金，会费，封缄费，投标费用，以及根据《劳动法》规定支付给员工的终止劳动合同补偿金等其他费用。

For hospitality, ceremonial, meeting, and foreign transaction expenses directly related to business operations, enterprises must establish expenditure standards and management rules. Transaction expenses are decided by the Board of Directors. Independent enterprises must agree in writing with the state capital and asset management agency before issuing these rules and standards. These expenses must be supported by valid documentation, linked to business results, and not exceed the maximum control limits set forth below:

- For revenue up to 5 billion VND, actual spending should not exceed 5% of revenue. - For revenue between 5-10 billion VND, additional spending should not exceed 2% of the increased revenue.

- For revenue between 10-50 billion VND, additional spending should not exceed 1% of the increased revenue.

- For revenue between 50-100 billion VND, additional spending should not exceed 0.5% of the increased revenue.

- For revenue between 100-500 billion VND, additional spending should not exceed 0.2% of the increased revenue.

- For revenue above 500 billion VND, additional spending should not exceed 0.1% of the increased revenue.

For trading units, the aforementioned control limits are determined based on the difference between revenue and the cost of goods sold.

Misappropriated expenses, expenses paid to incorrect recipients, or expenses lacking the recipient's name, address, or signature must be recovered and remitted to the state budget. Depending on the severity of the violation, the approver of the expenses must compensate, bear administrative responsibility, or face criminal prosecution.

- Interest on borrowed funds: This includes bank loan interest, employee loan interest, and interest from other sources under various forms of capital raising. Enterprises can only record interest paid to employees and other parties up to the ceiling rate published by the State Bank of Vietnam for the same period and industry in their business expenses.

Interest on investment loan capital must be recorded as follows:

+ For ongoing construction projects, the interest is recorded as part of the project value.

+ For completed and operational projects, the interest is recorded as production and business expenses.

- Recruitment, training, and education expenses aimed at improving employee skills and management knowledge are recorded as business expenses based on actual expenditures.

- Enterprises may establish provisions for reduced prices of inventory materials, difficult-to-collect receivables, and reduced financial investments, which can be recorded as business expenses following specific guidelines issued by the Ministry of Finance.

- Warranty expenses: Enterprises are allowed to set aside warranty expense amounts for products, goods, and construction projects to protect customer rights. The warranty expense amount is determined based on the specific circumstances of each type of product or good. If the actual warranty expenses exceed the set-aside amount during the warranty period, the difference can be added to operating costs; if they are lower, the difference can be deducted from operating costs for the period.

- Total company funding: This refers to the amounts that member enterprises set aside and submit according to the decision of the General Director for the management expenses of the Total Company. The level of set-aside must be approved by the Chairman of the Board of Directors after receiving written comments from the financial authority.

If the actual expenses of the Total Company are lower than the funding sources set aside by member enterprises, the Total Company must transfer the surplus to the next year to reduce the set-aside amount for the next year. Conversely, if the expenses are higher, the excess can be added to the set-aside amount for the next year.

7- The following items shall not be included in business operation expenses:

- Items already included in financial activity and other activity expenses as specified in Section B2 of this Circular, such as losses from joint ventures and associated companies, losses from other investment activities...

- Losses compensated by the Government or permitted to reduce capital, and losses compensated by the party causing damage and insurance companies.

- Foreign travel expenses exceeding the limits prescribed by the State.

- Expenses covered by other funding sources include:

+ Public service expenses.

+ Expenses for collective dining facilities.

+ Expenses for the activities of Party organizations and mass organizations.

+ Regular and extraordinary hardship allowances.

+ Lunch expenses.

+ Rewards from bonus funds established from post-tax profits, such as productivity bonuses, innovation bonuses, competition bonuses...

+ Expenses supporting localities, mass organizations, social organizations, and other agencies.

+ Expenses for basic construction investment, fixed asset purchases, and other investment expenses.

+ Research and experimental expenses funded by other sources.

+ Expenses for experts serving basic construction projects or research and experimental projects funded by other sources.

+ Training expenses not included in approved plans and programs.

+ Charitable expenses.

+ Penalties such as contract violation fines, administrative violation fines...

8- Calculation of product and service cost:

Depending on the production technology process and business conditions, enterprises determine the object and select appropriate methods to calculate the cost of products and services. Product and service costs may be calculated by factors or expense categories.

a) Production cost of products and services includes direct expense categories:

- Direct material costs: including costs for raw materials, materials, fuel, and power consumed directly for producing products and services.

- Direct labor costs: including payments made to direct workers such as wages, salaries, and allowances with wage characteristics, social insurance, health insurance, and trade union fees for direct workers.

- Common production costs: including common expenses incurred in workshops and business departments of the enterprise such as wages, allowances paid to workshop staff, material costs, tool and equipment costs for workshops, depreciation of fixed assets, external service costs, and other monetary expenses outside those mentioned above.

b) Total cost of consumed products and services includes:

- Production cost of consumed products and services.

- Sales expenses: including expenses incurred during the sale of products, goods, and services such as wages, allowances payable to sales staff, marketing, packaging, transportation, storage... depreciation of fixed assets; material, packaging, tool, and equipment costs, external service costs, and other monetary expenses such as warranty expenses, advertising expenses...

In principle, all sales expenses and business management expenses are fully transferred to the products and services sold in the year to determine the business results. In special cases, for some enterprises with long production cycles where there are no products sold or revenues do not correspond to sales expenses and business management expenses in the year, the sales and business management expenses incurred in the year are allocated to unfinished products and inventory according to the ratio of unfinished production costs and finished product production costs to total actual business expenses incurred in the period.

B.2- Management of Other Activity Expenses:

Other activity costs include: financial activity costs and extraordinary costs.

1. Financial activity expenses:

Financial activity expenses are expenses incurred from financial investments outside the enterprise aimed at using capital resources effectively, increasing income, and enhancing business efficiency. Financial activity expenses include:

- Joint venture and association expenses are expenses arising from joint venture and association activities.

- Asset rental costs.

- Bond, bill, stock purchase expenses, including investment losses if any.

- Provision for reduction in value of securities.

- Other costs related to external financial investments.

Enterprises must base their decisions on the effectiveness of each financial activity and relevant laws to determine these expenses, while clearly accounting for the actual expenses incurred from each financial activity.

2- Unusual expenses:

Unusual expenses are those costs that occur infrequently and are not specified in Section I and Section II, Point 1 above.

Unusual expenses include:

- Costs of selling off and liquidating fixed assets (including the residual value of fixed assets when liquidated and sold).

- The actual loss value after deducting compensation from the person at fault and insurance organizations, salvage value recovered (if any), and the amount already compensated by reserve funds.

- Expenses for recovering written-off debts;

- Other extraordinary expenses.

Enterprises must have regulations for managing each unusual expense. For losses caused by groups or individuals, the extent, cause, and responsibility for compensation must be clarified along with administrative measures.

III- IMPLEMENTATION

1- This Circular takes effect from the date of signature. All previous provisions contrary to this Circular are abolished.

2- Management agencies at all levels are responsible for disseminating and guiding state-owned enterprises to implement and manage revenue, business expenses, and product costs according to the provisions of this Circular.

3- The Board of Directors, General Director, Director (for enterprises with a Board of Directors), and Director (for enterprises without a Board of Directors) are responsible for organizing the implementation of this Circular.

4- In the course of implementation, if there are difficulties, state-owned enterprises shall promptly report to the Ministry of Finance for guidance.

Nguyen Sinh Hung (Signed)