Circular No. 89/2013/TT-BTC amends and supplements Circular No. 228/2009/TT-BTC of the Ministry of Finance guiding the system for setting aside and using reserves for inventory write-downs, financial investment losses, bad debts, and product warranty costs at enterprises.

CIRCULAR

Amending and supplementing Circular No. 228/2009/TT-BTC dated December 7, 2009 of the Ministry of Finance guiding the system for establishing and using provisions for inventory write-downs, financial investment losses, bad debt recoveries, and product, goods, and construction warranty claims at enterprises

concerning the guidance on the establishment and use of provisions for price reduction reserves, inventory write-downs, losses from financial investments, bad debt receivables, and product, goods, and construction works warranties at enterprises

inventory, loss of financial investment, bad debt receivables, and

product warranty, goods warranty, construction works warranty at the enterprise

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Pursuant to the Securities Law;

Pursuant to Decree No. 124/2008/NĐ-CP dated December 11, 2008 of the Government detailing and guiding the implementation of certain provisions of the Law on Corporate Income Tax;

Pursuant to Decree No. 122/2011/NĐ-CP dated December 27, 2011 of the Government amending and supplementing certain provisions of Decree No. 124/2008/NĐ-CP dated December 11, 2008 of the Government detailing and guiding the implementation of certain provisions of the Law on Corporate Income Tax;

Pursuant to the Decree No. 118/2008/NĐ-CP dated November 27, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

The Minister of Finance hereby issues this Circular amending and supplementing certain Articles of Circular No. 133/2015/TT-BTC dated August 31, 2015, issued by the Minister of Finance guiding the financial management mechanism for the Vietnam Chamber of Commerce and Industry (hereinafter referred to as Circular No. 133/2015/TT-BTC).

The Minister of Finance promulgates this Circular amending and supplementing Circular No. 228/2009/TT-BTC dated December 7, 2009 of the Ministry of Finance guiding the system for establishing and using provisions for inventory write-downs, financial investment losses, bad debt recoveries, and product, goods, and construction warranty claims at enterprises (referred to as Circular No. 228/2009/TT-BTC) as follows:

Article 1. Amending and supplementing Clause 2, Article 5 of Circular No. 228/2009/TT-BTC as follows:

a) Subject: includes capital investments by enterprises into economic organizations established in accordance with the law (including limited liability companies, joint-stock companies not meeting the conditions for establishing provisions as stipulated in Clause 1, Article 5 of Circular No. 228/2009/TT-BTC dated December 7, 2009 of the Ministry of Finance, joint ventures, partnerships) and other long-term investments that must establish provisions if the economic organization being invested in incurs losses (except in cases where losses are planned according to business plans before investment).

The establishment of long-term investment provisions shall be carried out for investments presented at historical cost, and shall not apply to investments presented at equity method as prescribed by law.

b) Conditions: Enterprises shall only establish provisions when the total actual investment capital of the owners exceeds the total actual equity of the invested economic organization.

c) Method of establishing provisions:

The amount of provision for each financial investment equals the amount of investment capital and is calculated according to the following formula:

Where:

- Total actual investment capital of all parties in the invested economic organization is determined from the Balance Sheet of the invested economic organization at the time of establishing provisions (account codes 411 and 412 of the Balance Sheet - issued together with Decision No. 15/2006/QĐ-BTC dated March 20, 2006 of the Minister of Finance).

- Actual equity of the invested economic organization is determined from the Balance Sheet of the invested economic organization at the time of establishing provisions (account code 410 of the Balance Sheet - issued together with Decision No. 15/2006/QĐ-BTC dated March 20, 2006 of the Minister of Finance).

Example: Company A is a joint-stock company operating in the construction sector with a registered capital of 50 billion VND, consisting of three shareholders contributing capital as follows: Company B holds 50% of the registered capital, equivalent to 25 billion VND; Company C holds 30% of the registered capital, equivalent to 15 billion VND; Company D holds 20% of the registered capital, equivalent to 10 billion VND. All companies have fully contributed capital according to their shareholding ratio, so the total investment capital of Companies B, C, and D in Company A is 50 billion VND.

In 2012, due to economic downturn, the business results of Company A incurred a loss of 6 billion VND, leading to the equity (account code 410 of the Balance Sheet) of Company A remaining at 44 billion VND.

Therefore, in 2012, when Companies B, C, and D implement the establishment of provisions for financial investments in Company A, they must base it on the financial statements of Company A for 2012, the amount of provisions for losses on financial investments in Joint-Stock Company A of these companies will be as follows:

Provision for financial investment of Company B:

(50 billion VND - 44 billion VND) x 25/50 = 3 billion VND.

Provision for financial investment of Company C:

(50 billion VND - 44 billion VND) x 15/50 = 1.8 billion VND

Provision for financial investment of Company D:

(50 billion VND - 44 billion VND) x 10/50 = 1.2 billion VND

d) Handling of provisions:

At the time of establishing provisions, if the capital investments in economic organizations suffer losses due to the economic organizations incurring losses, then provisions for losses on financial investments must be established according to the provisions of paragraph c of this Article;

If the amount of provisions for losses on financial investments to be established equals the balance of the provision account, then the enterprise does not need to establish additional provisions for losses on financial investments;

If the amount of provisions to be established is higher than the balance of the provision account, then the enterprise shall add the difference to the financial expenses of the enterprise;

If the amount of provisions to be established is lower than the balance of the provision account, then the enterprise must reverse the difference and record it as a reduction in financial expenses.

Article 2. Implementation

2. For enterprises that have already established provisions for financial investments based on the financial statements of the same year of the receiving economic organization when the competent authorities inspect, audit, and disallow such deductions from taxable income, the additional corporate income tax payable by the enterprise that has been paid into the state budget will be deducted from the amount payable in the following year (if the enterprise has not yet paid, it will not need to pay and there will be no need to adjust accounting records).

For enterprises that have already established provisions for financial investments based on the financial statements of the previous year of the receiving economic organization (for example, the parent company established provisions for long-term financial investments in 2011 based on the financial statements of the receiving economic organizations for 2010), if the enterprise has declared taxes in accordance with the law, it will not need to adjust the establishment of provisions for financial investments according to this Circular.

During the implementation process, if there are any difficulties, please promptly reflect them to the Ministry of Finance for timely resolution./.