Circular No. 228/2009/TT-BTC dated December 7, 2009 of the Ministry of Finance guiding the appropriation and use of provisions for devaluation of inventories, loss of financial investments, bad receivable debts and warranty for products, goods and construction works at enterprises

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Issuing body:	Ministry of Finance	Effective date:	Known Please log in to a subscriber account to use this function. Don’t have an account? Register here
Official number:	228/2009/TT-BTC	Signer:	Tran Van Hieu
Type:	Circular	Expiry date:	Known Please log in to a subscriber account to use this function. Don’t have an account? Register here
Issuing date:	07/12/2009	Effect status:	Known Please log in to a subscriber account to use this function. Don’t have an account? Register here
Fields:	Enterprise, Finance - Banking

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THE MINISTRY OF FINANCE -------	SOCIALIST REPUBLIC OF VIET NAM Independence - Freedom - Happiness ----------
No. 228/2009/TT-BTC	Hanoi, December 07, 2009

CIRCULAR

GUIDING THE APPROPRIATION AND USE OF PROVISIONS FOR DEVALUATION OF INVENTORIES, LOSS OF FINANCIAL INVESTMENTS, BAD RECEIVABLE DEBTS AND WARRANTY FOR PRODUCTS, GOODS AND CONSTRUCTION WORKS AT ENTERPRISES

THE MINISTRY OF FINANCE

Pursuant to the Securities Law;
Pursuant to the Government's Decree No. 118/2008/ND-CP of November 27, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;
Pursuant to the Government's Decree No. 124/2008/ND-CP of December 11, 2008, detailing and guiding a number of articles of the Law on Enterprise Income Tax;
Pursuant to the Government's Decree No. 09/ 2009/ND-CP of February 5, 2009, promulgating the Regulation on financial management of state companies and management of state capital invested in other enterprises;
The Ministry of Finance guides the appropriation and use of provisions for devaluation of inventories, loss of financial investments, bad receivable debts and warranty for products, goods and construction works at enterprises as follows:

Part I

GENERAL PROVISIONS

Article 1. Subjects of application

Organizations producing or trading in goods or providing services and earning taxable incomes as prescribed by law (below referred to as enterprises).

1. For enterprises founded under agreements concluded between the Government of the Socialist Republic of Vietnam and foreign governments which contain provisions on the appropriation and use of provisions different from the guidance in this Circular, these agreements will prevail.

2. The appropriation of provisions by credit institutions complies with the document guiding financial regimes applicable to credit institutions.

Article 2. Interpretation of terms

1. Provision for devaluation of inventories means the provision for a value lost due to the decrease in prices of in-stock supplies, finished products and goods.

2. Provision for loss of financial investments means the provision for a value lost due to the decrease in prices of 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.

3. Provision for bad receivable debts means the provision for the lost value of overdue receivable debts and undue receivable debts which are likely to become possibly irrecoverable due to insolvency of debtors.

4. Provision for warranty for products, goods and construction works means the provision for expenses to be spent on products, goods and construction works which enterprises have sold or handed over to buyers but are still obliged to repair or improve under contracts or commitments with customers.

Article 3. General principles in appropriating provisions

1. Provisions defined at Points 1, 2, 3 and 4, Article 2 of this Circular shall be appropriated in advance as enterprises' business expenses in the reporting year and constitute a financial source for enterprises to offset possible losses in the plan year so as to preserve their business capital and ensure that enterprises do not reflect the value of inventories and financial investments higher than their market prices and the value of their receivable debts higher than their recoverable value at the time of making financial statements.

2. The time of appropriating and refunding provisions is the end of the accounting year. In case enterprises are permitted by the Ministry of Finance to apply a fiscal year other than the calendar year (which begins on January 1 and ends on December 31), the time of appropriating and refunding provisions is the last day of the fiscal year.

Listed enterprises which are required to make mid-year financial statements may also appropriate and refund provisions at the time of making mid-year financial statements.

3. Enterprises shall work out a regulation on the management of supplies, goods and debts so as to reduce business risks. The regulation must clearly define responsibilities of each section or person engaged in the monitoring and management of goods and recovery of debts.

Enterprises are prohibited from abusing the appropriation of provisions to additionally account as groundless provisions so as to reduce their budgetary remittance obligations. Enterprises that intentionally commit violations will be sanctioned like those committing tax evasion in accordance with current laws.

4. Enterprises must set up councils to evaluate the level of provisions to be appropriated and handle actual loss of in-stock supplies and goods, financial investments and irrecoverable debts according to this Circular and other relevant legal documents. Particularly, the provision for warranty for products, goods and construction works shall be appropriated under contracts or commitments with customers.

A council is composed of the director general (or director), the chief accountant, heads of concerned sections and some experts (when necessary). The enterprise's director general (or director) shall decide on the setting up of the council.

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Circular No. 228/2009/TT-BTC dated December 7, 2009 of the Ministry of Finance guiding the appropriation and use of provisions for devaluation of inventories, loss of financial investments, bad receivable debts and warranty for products, goods and construction works at enterprises

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