Circular No. 13/2006/TT-BTC dated February 27, 2006 of the Ministry of Finance guiding the regime of setting up and use of financial provisions for in-stock goods price decrease, loss of financial investments, bad debts and warranty for products, goods and construction works at enterprises
THE MINISTRY OF FINANCE
SOCIALIST REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
Hanoi, February 27, 2006
GUIDING THE REGIME OF SETTING UP AND USE OF FINANCIAL PROVISIONS FOR IN-STOCK GOODS PRICE DECREASE, LOSS OF FINANCIAL INVESTMENTS, BAD DEBTS AND WARRANTY FOR PRODUCTS, GOODS AND CONSTRUCTION WORKS AT ENTERPRISES
In order to create a fair business environment for Vietnamese enterprises, the Finance Ministry hereby guides the setting up and use of financial provisions at enterprises for in-stock goods price decrease, loss of financial investments, bad debts and warranty for products, goods and construction works, as follows:
I. GENERAL PROVISIONS
1. Subjects of application:
Enterprises established under the provisions of Vietnamese law (including foreign-invested enterprises).
For joint-ventures enterprises established on the basis of agreements concluded between the Government of the Socialist Republic of Vietnam and foreign governments and containing provisions on setting up and use of financial provisions different from the guidance in this Circular, the provisions of such agreements shall apply.
2. Enterprises are allowed to set up the following provisions:
>> See also: Consultancy service on wage regulation of enterprise
a/ Provision for in-stock goods price decrease, which means a provision for a value lost due to decrease of prices of in-stock supplies, finished products and/or goods.
b/ Provision for loss of financial investments, which means a provision for a value lost due to decrease of prices of assorted securities invested by enterprises; and for the value of financial investments lost due to loss-making operation of economic organizations in which enterprises are investing.
c/ Provision for bad debts, which means a provision for the lost value of overdue receivable debts, and undue receivable debts which are possibly irrecoverable due to insolvency of debtors.
d/ Provision for warranty for products, goods and/or construction works, which means a provision for expenses to be spent on products, goods and/or construction works which enterprises have sold or handed over to buyers but are still obliged to continue repairing or improving them under contracts or commitments with such customers.
3. The four provisions defined in Clause 2 above shall be deducted in advance as enterprises' business operation expenses in the reporting year and constitute a financial source to offset possible losses in the plan year, so as to preserve their business capital and ensure that enterprises reflect the value of their supplies and goods in stock and financial investments not higher than their market prices and the value of their receivable debts not higher than the recoverable value at the time of making financial statements.
4. The time of setting up and refunding provisions shall be the end of the accounting year. Where enterprises are allowed by the Finance Ministry to apply a financial year other than the calendar year (which begins on January 1 and ends on December 31 each year), the time of setting up provisions shall be the ending day of the financial year.
Particularly, listing enterprises which are required to make their financial statements in mid-year may set up and refund provisions at the time of making mid- year financial statements.
5. Enterprises must set up councils for evaluation of the level of provisions to be set up and handling of actual losses of supplies and goods in stock, financial investments, irrecoverable debts according to the provisions of this Circular and other relevant legal documents. Particularly, the provision for expenses for warranty of products, goods and/or construction works shall be set up under contracts or commitments with customers.
A council shall be composed of the director, the chief accountant, heads of concerned sections and some experts if necessary. The enterprise director shall decide on the setting up of the council.
Click Download to see full text
>> See also: Consultancy for developing regulations for enterprises
>> See also: Consultancy service of conversion of enterprise type