Circular No. 48/2019/TT-BTC dated August 08, 2019 of the Ministry of Finance on instructions on the appropriating and handling of provisions of devaluation of stocks, losses of investments, bad debts and warranty on products, goods, services, construction works at enterprises

CIRCULAR

Instructions on the appropriating  and handling of provisions of devaluation of stocks, losses of investments, bad debts and warranty on products, goods, services, construction works at enterprises

Pursuant to the Government s Decree No.87/2017/ND-CP of July 26, 2017, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

Pursuant to the Decree No.218/2013/ND-CP dated December 26, 2013 of the Government detailing and guiding the implementation of the Law on Corporate income tax;

Pursuant to the Government s Decree No.91/2014/ND-CP of October 1, 2014, amending and supplementing a number of articles in tax-related Decrees; Decree No.12/2015/ND-CP dated February 12, 2015 of the Government detailing the implementation of the Law amending and supplementing a number of articles of tax laws and amending and supplementing a number of articles of Decree on taxes;

At the proposal of the Director of the Enterprise Finance Department;

The Minister of Finance issues a Circular guiding the setting up and handling of provisions for devaluation of inventories, losses of investments, bad debts and warranty of products, goods and services, construction works at enterprises.

ChapterI

GENERAL REGULATIONS

Article 1. Scope of regulation and objects of application

1. This Circular guidesthe appropriating  and handling of provisions of devaluation of stocks, losses of investments, bad debts and warranty on products, goods, services, construction works at enterprisesserving as a basis for determining deductible expenses when determining incomes subject to corporate income tax according to regulations.

Theprovisioningfor the purpose ofpreparingand presenting the financial statements of economic organizations shall comply with the law on accounting.

2. This Circular applies to subjects being economic organizations (hereinafter referred to as enterprises for short)that areestablished, conducting production and business activities according to the provisions of Vietnamese law.

The foreign credit institutions and bank branches established legally in Vietnam shallappropriateand handle provisions according to the provisions of this Circular.For risk provisions in the operationsof foreign credit institutions and bank branches, the provision and use shall be made according to regulations promulgated by the State Bank of Vietnam after reaching agreement with the Ministry of Finance.

Article 2. Interpretation of terms

In this Circular, the terms below are construed as follows:

1.The provisioning for devaluation of inventories: is a provision when there is adevaluationof net realizable valuewhich islower than the book value of inventories.

2. Provision for loss of investments: is a provision for thepossiblelost value due to the pricedecreaseof the securities held by the enterprise and the possible loss of losses caused bydevaluation ofother investments of enterprises into economic organizations receiving contributed capital (excluding investmentsabroad).

3. Provision for bad debts: is aprovisionfor the loss value of the receivable debts which are overdue and the receivable debts which have not yet matured butpossibly notrecovered on time.

4. Provision for warranty of products, goods, services and construction works: means aprovisionfor expenses for products, goods, services and construction works already sold, provided or deliveredto thebuyers,butthe enterprise is still obliged to continue to repair,finishaccording to contracts or commitments to customers.

Article 3. General principles of provisioning

1. Provisions prescribed in this Circular shall be accounted into deductible expenses when determining incomes subject to corporate income tax in the annual reporting period in order to offsetpossiblelosses in the subsequent year s reporting period; ensuring thatenterprises reflect the value of inventories, investmentswhichare not higher than market prices and the value of receivables is not higher than the recoverable value at the time ofpreparingthe financial statements. main year.

2. Time ofappropriatingand reversing provisions is the time ofpreparingannual financial statements.

3. Enterprises shall consider and decide on thebuilding-upof regulations on management of supplies and goods, management of investment portfolios and debt management in order to limit business risks, clearly determiningeach division, each person in monitoring, managingmaterials, goods, investments, debt collection.

4. Enterprises do not appropriate risk provisions forinvestments abroad.

ChapterII

SPECIFIC REGULATIONS

Article 4. Provision for devaluation of inventories

1. Objects ofprovisioninginclude raw materials, materials, tools,devices, goods and goods purchased ontransit, goods sent for sale, goods of tax-guarantee warehouses and finished products (hereinafter referred to asinventoriesfor short) inventory) where thehistorical costrecorded in the accounting book is higher than the net realizable value and ensures the following conditions:

- Having legal invoices and vouchers as prescribed by the Ministry of Finance or other reasonable evidences to prove the costpriceof goods sold.

- Inventoriesowned by the enterprise at the time of preparing the annual financial statements.

2. The level of provisioningis calculated according to the following formula:

Of which:

- Historical cost of inventories is determined in accordance with the Accounting Standard No.02 – Inventories, issued together with Decision No.149/2001/QD-BTC dated December 31, 2001 of the Minister of Finance and amended, supplemented or alternative documents (if any).

- The net realizable value of inventories determined by the enterprise itself is the estimated selling price of inventories in the normal production and business period at the time of preparing the annual financial statements (-) estimated costs for product completion and estimated costs needed for consuming them.

3. At the time of preparing the annual financial statements, on the basis of documents collected by the enterprise proving that the historical cost of inventories is higher than the net realizable value of the inventory, then basing on the provisions in Clause 1 and 2 of this Article, enterprises shall make provisioning for inventories as follows:

a) If the amount of the provision to be appropriate is equal to the balance of the provision for devaluation of the inventories of the previous year s report, which is recorded on the accounting book, the enterprises shall not be allowed to additionally appropriate provisions for devaluation of inventories

b) If the amount of provision to be appropriate is higher than the balance of the provision for devaluation of inventories recorded in the previous year s report, which is recorded in the accounting book, the enterprises shall additionally appropriate the difference into the cost price of goods sold in the period.

c) If the amount of provision to be appropriate is lower than the balance of the provision for devaluation of inventories appropriate in the previous year s report, which is recorded in the accounting book, the enterprises shall refund the reverse the difference and state the decrease of cost price of good sold in the period.

d) The level of provisioning for devaluation of inventories is calculated for each devalued inventory item and incorporated in the detailed list. The detailed list is a basis for accounting into the cost price of goods sold (the cost of all goods consumed in the period) of an enterprise.

4. Handling of inventories to which the provisioning has been made

a) Inventories due to natural disasters, epidemics, fires, damages, obsolete, technically backward, outdated or due to changes in natural biochemical processes, expiry date, no longer valid for use, shall be disposed of, liquidated.

b) Competence to handle:

Enterprises shall appropriate a handling council or hire consultancy organizations with price appraisal functions to determine the value of disposed and liquidated inventories. The stocktaking record of inventory of valuation of inventories disposed shall be made by the enterprise itself, clearly determining the value of damaged inventory, causes of damage, types, quantities and value of inventories recoverable (if any).

The Board of Directors, the Members Council, the Chairman of the Company, the General Director, the Director, the owner of the private enterprises and the owner of other economic organizations shall base themselves on the minutes of the Handling Council or proposal of consultancy organization with price appraisal function, evidence relating to inventories, to decide on disposal, liquidation; decide to handle the responsibilities of those who are involved in the inventories and take responsibility for their decisions in accordance with the law.

c) The actual loss of each type of unrecoverable inventory is the difference between the value recorded in the accounting book minus the value recovered from the person causing liquidated damages, from the insurance agencies and from liquidation of inventories.

The actual loss value of unrecoverable inventory with a disposing decision, after offsetting with provision of devaluation of inventories, the difference is accounted into the cost price of sold goods of the enterprise.

Article 5. Provision for loss of investments

1.Investments on securities:

a)Subjects for the provisioningare types of securities issued by domestic economic organizations in accordance with the law on securities,owned by the enterprise at the time ofpreparingthe annual financial statements,which meet all conditionsbelow:

- Is securities listed or registeredfortrading on the domestic stock marketon whichthe enterprise is investing.

- Is a securities thatisfreely traded in the market that at the time ofpreparingthe annual financial statements, the actual market price of securities is lower than the value of the securities investment being accounted in the accounting books.

b) The level ofprovisioning for devaluation ofsecurities investment is calculated according to the following formula:

- For listed securities (including stocks, fund certificates, derivative securities, listed warrants): the actual market price of securities is calculated at the closing price atlatest day withtransactions to the time ofpreparingthe annual financial statements.

In case the securities have been listed on the marketbut there is notransactions within 30 days prior to the date ofprovisioning, the enterprise shall determine thelevel of provisioningeach securities investment as prescribed in Point b, Clause 2 of Article. this.

In case, at the date ofprovisioning, the securities are delisted or their transactions are suspendedor ceased, the enterprise shall determine thelevel of provisioningfor each securities investment as prescribed at Point b, Clause 2. This.

- For stocks registered to trade on the trading market of unlisted public companies and state-owned enterprises equitized in the form of offering securities to the public (Upcom),thenthe actual securities price in the market isdefined as the average reference price for the latest30 trading days prior to the time of preparing the annual financial statements announced by the Stock Exchange. In case the shares of a joint stock company havebeenregistered for trading on the Upcom marketbut there is noa transaction within 30 daysprior tothe time of preparing the annual financial statements, the enterprise shall determine thelevel of provisioningfor each investment. securities prescribed at Point b, Clause 2 of this Article.

- For Government bonds: the actual bond prices on the market are the average prices set by the market makers to offer firm prices in theofferingsession under the provisions of Decree No.95/2018/ND -CP on June 30, 2018 on the issuance, registration, custody, listing and trading of Government debt instruments on the securities market; the Ministry of Finance s guiding documents and additional or replacement documents, if any. Incase of theabsence of the above-mentionedcommitted offeringprice, the actual bond price on the market is the latest transaction price at the Stock Exchange within 10 days of the time ofpreparingthe financial statements. In case there is no transaction within 10 days up to the time ofpreparingthe annual financial statements,thenthe enterprise will not make provisioningfor this investment.

- For local government bonds,guaranteedgovernment bonds and corporate bonds: the price of bonds on the market for local government bonds,guaranteedgovernment bonds and corporate bondslisted and registered for trading is thelatest trading price at the Stock Exchange within 10 days of the time ofpreparingthe financial statements. In case there is no transaction within 10 days up to the time of making the annual financial statement, the enterprise will not make provisioningfor this investment.

c) At the time of preparing the annual financial statements,if the actual investment value of the securities investment being accounted in the accounting books of the enterprise isdevaluedcompared to the market price,thenthe enterprise must make provisioningaccording to theclausesat Points a and b, Clause 1 of this Article and the followingregulations:

- If the amount of provision to be appropriate is equal to the balance of the provision for devaluation of securities investment already made in the previous year s reportandrecorded in the accountingbook, the enterprise shallnotmake additional provisions fordevaluation of securities investment.

- If the amount of provision is higher than the balance of provision for for devaluation of securities investment previously recorded in the accounting book, the enterprise shall make additional provisions and record expenses in the period.

If the amount of provision to be appropriate in this period is lower than the balance of the provision for devaluation of investment securities already made in the previous year s reporandrecorded in the accounting book, the enterprise shallreversethe difference and recordthe expense decrease in the period.

- Enterprises must appropriate separate provisions for each securities investment with price fluctuation at the time of preparing the annual financial statements and synthesize them into the detailed list of reserves for devaluation of securities investmentsasbases for accounting into enterprises expenses.

- Themaximumlevel of provision for each securities investment defined at Point b, Clause 1 of this Article shall be equal to the actual investment value accounted in the accounting book of the enterprise.

d) For unlisted and unregistered securities, enterprises shall determine the provision level for each securities investment according to the provisions of Point b, Clause 2 of this Article.

2. Other investments:

a) Subjects: investments in domestic economic organizations, not securities investments prescribed in Clause 1 of this Article, being owned by an enterprise at the time of preparing the annual financial statements, with the basis showing that there is a decline in value compared to the investment value of the enterprise.

a) Level of appropriation

- Based on the separate financial statements of the economic organization receiving contributed capital at the same time of preparing the annual financial statements of the capital-contributing enterprise, the enterprise contributing capital shall determine the provision for each investment as follows:

Of which:

- Actual investment capital of owners in economic organizations receiving contributed capital at the time of provisioning is determined on the annual balance sheet of economic organizations receiving capital contributions (code 411 and code No.412 balance sheet - issued together with Circular No.200/2014/TT-BTC dated December 22, 2014 of the Ministry of Finance and amended, supplemented or replaced documents - if any.

- Owner s equity of the economic organization receiving the contributed capital at the time of provisioning is determined on the annual balance sheet of the economic organization receiving the contributed capital at the time of provision appropriation (code 410 Table balance accounting - issued together with Circular No.200/2014/TT-BTC dated December 22, 2014 of the Ministry of Finance and amended, supplemented or replaced documents - if any.

c) At the time of preparing the annual financial statements if the investments in economic organizations have a decline in value compared to the investment value of the enterprises, then the enterprises shall make provisions according to the clauses at the points a, Point b, Clause 2 of this Article and the following provisions:

- If the amount of provision to be appropriate is equal to the balance of the provision for investments made in the previous year report and recorded in the accounting book, the enterprise shall not additional provisions for losses of investments

- If the amount of provision to be appropriated is higher than the balance of the provision for investments made in the precious year, which is recorded in the accounting book, the enterprise shall make additional provisions and record into expenses during the period.

- If the amount of provision to be appropriated is lower than the balance of the provision for investments in the precious year, which is recorded in the accounting book, the enterprise shall reverse the difference and state the decrease of expense in the period

- Enterprises must appropriate separate provisions for each investment and are included in the detailed list of provision for investment losses into other units as a basis for accounting into enterprises expenses.

- The maximum level of provision for each investment defined at Point b, Clause 2 of this Article shall be equal to the actual investment value accounted in the accounting book of the enterprise.

- For investments of debt trading companies contributed to joint stock companies through the transfer of debts into contributed capital, when making provisions, the debt trading enterprises shall be deducted from the accumulated losses at the capital-receiving companies arising before the time of debt transfer into contributed capital.

- If an economic organization receiving contributed capital does not make financial statements at the same time, the enterprise shall not make provision for this investment; except in the following cases, the enterprise may make provision based on the latest quarterly financial statement of the economic organization receiving the contributed capital:

+ Economic organizations that receive capital contributions do not make financial statements at the same time of making annual financial statements of enterprises contributing capital because they have ceased operation and are awaiting for settlement (dissolution or bankruptcy).

+ Economic organizations receiving contributed capital are allowed to make financial statements different from the time of making annual financial statements of capital-contributing enterprises and have notified the competent agencies according to the law on accounting.

3. Handling of investments to which provisioning has been made

When transferring the investment which has been appropriated for provision according to Clauses 1 and 2 of this Article, the difference between the proceeds collected from the investment transfer and the value recorded in the accounting book may use the appropriated provision of this investment to off set; for the deficient portion, the enterprise shall record in the period expenses; for the surplus portion, the enterprise shall state expense decrease in the period.

Article 6. Provisions for bad debts

1. The subjects to which the provision is made are the receivable debts (including the amounts being lent by the enterprises and the bonds not yet registered for trading on the securities market and owned by the enterprises), which are overdue and receivables that have not yet matured but are likely to be irrecoverable timely by the enterprise and at the same time ensure the following conditions:

a) Must have original documents proving the amount of unpaid debts, including:

- One of the following original documents: Economic contract, loan agreement, debt commitment;

- Contract liquidation minutes (if any);

- Debt balance table; in case there is no debt balance table, there must be a written request for debt balancing and debt claim sent by the enterprise (with postmark or certification of the EMS service providers);

- List of debts;

- Other relevant documents (if any).

b) Having enough grounds to determine that it is a bad receivable debt:

- Receivable debt is overdue from 06 months or more (calculated according to the original repayment period according to economic contract, loan agreement or other debt commitments, regardless of the debt repayment extended time between the parties), the enterprise has sent debt balancing table for debt confirmation or has made payment urging but the debt is still not recovered.

- Receivable debts which have not yet been due but the enterprise collects evidence to determine that the debtors are unable to repay debts on time according to the provisions of Point c, Clause 2 of this Article.

- For debts purchased by debt trading enterprises (with registration of business lines and activities of debt trading in accordance with the provisions of law), the overdue time is counted from the date of transfer of creditors rights between parties (on the basis of the minutes or notices on the handover of creditors rights) or according to the latest commitments (if any) between debtors and debt trading enterprises.

2. Level of appropriation:

a) For overdue receivable debts, the provisioning level is set as follows:

- 30% of the value for debts overdue from 6 months to less than 1 year.

- 50% of the value for debts overdue from 1 year to less than 2 years.

- 70% of the value for debts overdue from 2 years to less than 3 years.

- 100% of the value for debts receivable from 3 years or more.

b) For enterprises doing business on telecommunications services and retailing, the payable debts of post-paid telecommunications, information technology and television service charges and receivable debts from goods retail In the form of deferred/instalment payment by debtors who are individuals, which are overdue, the provisioning level is as follows:

- 30% of the value for debts overdue from 3 months to less than 6 months.

- 50% of the value for debts overdue from 6 months to less than 9 months.

- 70% of the value for debts overdue from 9 months to less than 12 months.

- 100% value for debts overdue from 12 months or more.

c) For receivable debts which have not yet been due but the enterprise collects evidence to determine that the economic organization has gone bankrupt, has opened bankruptcy procedures, has fled from its registered business location; debtors who are prosecuted, detained or tried by law enforcement agencies, are serving sentences or are suffering from serious diseases (certified by the hospital) or have died or debts have been required by enterprises for judgment enforcement but cannot be carried out due to the debtors fleeing their residence; If the debt has been sued by the enterprise, but it is suspended from being settled, then the enterprise shall estimate the irrecoverable loss (up to the value of the debt being monitored in the accounting book) for provisioning.

3. At the time of preparing the annual financial statements if the receivable debts are determined to be bad, the enterprise must appropriate provisions according to the provisions of Clause 2 of this Article and the following regulations:

a) If the amount of provision to be appropriated is equal to the balance of provision for bad debts appropriated in the previous year s report and recorded in the accounting book, the enterprise shall make additional provision for receivable bad debts.

b) If the amount of provision to be appropriated is higher than the balance of provision for bad debts appropriated in the previous year s report and recorded on the accounting book, an enterprise shall make additional appropriation and record them in expenses in the period.

c) If the amount of provision to be appropriated is lower than the balance of the provision for bad debts appropriated in the previous year s report and recorded in the accounting book, an enterprise shall reverse the difference and record the expense decrease in the period.

d) Enterprises must anticipate the possible loss or overdue age of the debts and appropriate a provision for each bad debt, together with evidences proving the above mentioned bad debts. After appropriating a provision for each bad receivable debt, the enterprise shall sum up all provisions for debts into a detailed list to serve as a basis for accounting into enterprises expenses.

d) For debts purchased by debt purchase enterprises, based on the plan on debt purchase and handling and the principles of provisioning in this Circular for provisioning, the provision mount to be appropriate is, at maximum, equal to the amount that the enterprise has spent to purchase the debt, the maximum time for provisioning does not exceed the time of enterprise’s restructuring, debt recovery at the plan of debt purchase and handling.

e) The enterprise shall not make provision for debts which are overdue from the paid profits and dividends coming from capital contribution to other enterprises.

g) When making provisions for recoverable bad debt of an object with both receivable and payable debts, based on the debt balancing table between the two parties, the enterprise shall make provisions on the basis of the remaining amount collectable after clearing the payable debts of this object.

The level of provisioning for each overdue debt shall be calculated according to the ratio (%) of the overdue debt to be appropriated for provision according to the prescribed time limit multiplied by (x) the total debt to be recovered after clearing the payable debt.

For example: Company A has arisen sales operations for Company B under each contract and has overdue payment as follows:

+ Sale of goods under contract 01 to Company B, contract value is 5 million VND, Company B has not paid the debt, 7 months overdue.

+ Sale of goods under contract 02 for Company B, contract value is VND 15 million, Company B has not paid debts, overdue 13 months.

+ Sale of goods under contract 03 for Company B, contract value is 10 million VND, Company B has not paid the debt, 25 months overdue.

- Total overdue receivables of Company B: VND 30 million.

- At the same time, Company A purchases Company B s products, the amount that Company A has to pay for Company B is: VND 10 million.

- Thus, the amount still to be collected after clearing the payable debt for Company B is: VND 20 million.

- The level of provisioning for receivable debts of the goods under contract 01 is: 5/30 x 20 million VND x 30% = 1 million VND.

- The level of provision for receivable debts of the goods under contract 02 is: 15/30 x 20 million VND x 50% = 5 million VND.

- The level of provision for receivable debts of the goods under contract 03 is: 10/30 x 20 million VND x 70% = VND 4.67 million.

4. Financial handling of receivable debts which are irrecoverable:

a) Irrecoverable receivable debts are receivable debts which have become overdue or have not due, belonging one of the following cases:

- The debtors are enterprises and organizations that have completed the bankruptcy according to the provisions of law.

- The debtors are enterprises and organizations that have ceased operations or dissolved.

- The debtors have been decided by the competent authority to write off the debt in accordance with law.

- Debtors are individuals who have died or are prosecuted, detained or tried by law enforcement agencies.

- The remaining difference of irrecoverable debts after already handling responsibilities of individuals and collectives that have to make material compensation.

- The receivable debt has been appropriated for provision 100% as stipulated in the fourth dash at Point a, Clause 2 of this Article, but after 3 years from the time the enterprise makes a 100% provisioning, it has not yet been recovered

- The receivable debt has been appropriated for provision 100% as stipulated in the fourth dash at Point b, Clause 2 of this Article, but after 1 year from the time the enterprise makes a 100% provisioning, it has not yet been recovered

b) Irrecoverable receivable debts prescribed at Point a, Clause 4 of this Article, when there are sufficient documents to prove, specifically as follows:

- Accounting books, vouchers and documents proving that debts have not been recovered to the time of debt handling that enterprises are accounting receivable debts on accounting books of enterprises such as economic contracts; loan agreement; debt commitment; contract liquidation minutes (if any); debt balancing table (if any); a written request for debt balancing or claim for debt sent by the enterprise (with postmark or certification of by EMS service provider); list of debts and other related documents.

- Cases for economic organizations:

+ The object of bankruptcy: there is a decision of the Court declaring bankruptcy under the Bankruptcy Law.

+ The debtors the operations have been ceased or dissolved: have written confirmation or notice in writing/notices on the official website of the agency deciding on the establishment of the enterprises or business registration organization or body tax authorities directly manage the enterprises or organizations that they have ceased operations or dissolved; or the debt has been sued filed in court by the enterprise, organization according to regulations, has the judgment, decision of the court and has comments of confirmation from judgment enforcement agency that the debtors have no assets for judgment enforcement.

+ For receivable debts but the debtors have been decided by the competent agencies to write off debts according to the provisions of law; The difference in losses is decided by the competent authority to sell the debt.

- For individuals:

+ Death certificate (certified copy or copy from the original book) or local authority s certification for the dead of debtors.

+ Wanted warrants; or certification of the legal agency for the debtors who have fled; or certification of a legal agency that the debtors are no longer settling in their place of residence for the debts payable for post-paid telecommunications, information technology and television services of telecommunications service enterprises; or being prosecuted, serving sentence.

- The records and documents proving that the receivable debts which have been applied with 100% provisions as prescribed in the fourth dash at Point a, Clause 2 of this Article, after 3 years from the time the enterprises appropriate for 100 % of provision but still cannot recover the debt or receivable debts have been applied with 100% provisions as prescribed in the fourth dash at point b, Clause 2 of this Article, but after 1 year from the time the enterprise appropriate for 100% of the provision, the debt has not been recovered yet.

c) Financial handling:

- Actual loss of each irrecoverable debt is the difference between the receivable debt recorded in the accounting book and the recovered amount (from compensation by person causing damage, from the sale of debtors, from the division of assets according to court decisions or other competent authorities).

- The actual loss value of the irrecoverable debt, the enterprise uses the bad debt provision source (if any) to set off, the deficient difference accounted in the expenses of an enterprise.

- Receivables that are irrecoverable after having a decision on handling according to the above regulations must be followed up in the corporate governance system and presented in the financial statement explanation for at least 10 years from the date of handling and continue to take measures to recover debts. If debt is recovered, the amount of money recovered after subtracting expenses related to debt recovery shall be accounted into income.

d) When handling unrecoverable receivable debts, enterprises must compile the following documents:

- Minutes of the Debt Settlement Council of the enterprise. In which, specifying the value of each receivable debt, the value of the recovered debt, the actual value of damage (after subtracting recovered amounts).

- A detailed list of cleared receivable debts as a basis for accounting. Accounting books, vouchers and documents proving that debts have not been recovered, to the time of debt handling, enterprises are accounting receivable debts on the accounting books of enterprises.

- Records and documents related to the provision of provision related to receivable debts are irrecoverable.

d) Debt handling competence:

Board of Directors, Members’ Council, Chairman of the company, General Director, Director, owner of private enterprises and owners of economic organizations based on the minutes of the Council of Handling made by enterprises prepare and evidences related to the debt to decide to handle the irrecoverable debts and take responsibility for their decisions before the law. The composition of the Council Handling shall be decided by the enterprise itself.

Article 7. Provision for warranty of products, goods, services and construction works

1. Subjects and conditions for provisioning are products, goods, services and construction works carried out by enterprises which have been sold, provided or handed over to purchasers within the warranty period and the enterprise is still obliged to continue to repair, improve, warranty under contracts or commit to customers.

2. Level of appropriation for provisions:

The enterprise estimates the loss level to appropriate the provision for warranty of products, goods, services, construction works consumed and services provided in the year and to make provisions for each type of product, goods, services, construction works with warranty commitments.

Total amount of provision for warranty of products, goods, services, construction works is subject to commitment with customers but not exceeding 05% of total annual sales for products, goods and services and not more than 5% of contract value for construction works.

3. After making provision for each type of product, goods, service or construction work, the enterprise shall sum up all the provisions into a detailed list. The detailed list is the ground for accounting into the expenses of the enterprise in the period.

4. At the time of preparing annual financial report, basing on the situation of consumption, delivery of products, goods, services, construction works and the warranty commitments in the contract or the relevant regulations, the enterprises shall make the provision as per regulations in clause 1, clause 2 and clause 3 of this Article and the following regulations:

- If the amount of provision to be appropriated is equal to the balance of the provision for warranty of products, goods, services, construction works appropriated in the previous year s report and recorded in the accounting book, the enterprise shall not make provision for warranty of products, goods, services and construction works.

- If the amount of provision to be appropriated is higher than the balance of the provision for warranty of products, goods, services and construction works already appropriated in the previous year s report and recorded in the accounting book, the enterprise shall additionally make provision for such difference and record expenses in the period.

- If the amount of provision to be appropriated is lower than the balance of the provision for warranty of products, goods, services and construction works appropriated in the previous year s report and recorded in the accounting book, the enterprise shall reverse such difference and state as the expense decrease in the period.

- After the warranty period, if the products, goods, services, construction works are not subject to warrantee or the payable provision for warranty of products, goods, services, construction works is higher than actual expenses incurred, then the remaining balance is reversed into the income of the enterprise.

ChapterIII

IMPLEMENTATION PROVISIONS

Article 8. Implementation effect

1. This Circular takes effect from October 10, 2019 and applies from the fiscal year 2019.

2. To annul Circular No.228/2009/TT-BTC dated December 7, 2009 of the Ministry of Finance guidingthe appropriating  and handling of provisions of devaluation of stocks, losses of investments, bad debts and warranty on products, goods, services, construction works at enterprises; Circular No.34/2011/TT-BTC dated March 14, 2011 of the Ministry of Finance amending the Circular No.228/2009/TT-BTC dated December 7, 2009; Circular No.89/2013/TT-BTC dated June 28, 2013 of the Ministry of Finance amending and supplementing Circular No.228/2009/TT-BTC dated December 7, 2009 and other documents regulating the appropriation and use of provisions which are contrary to the provisions of this Circular.

3. The provisioning in enterprises operating in a number of specific areas (insurance, securities, investment in capital trading, debt trading, retailing of deferred/instalment goods) shall comply with the guidance in this Circular and comply with separate regulations (if any) suitable to particularities under the guidance of the Ministry of Finance.

4. State enterprises and enterprises with 100% of their capital invested by State enterprises and transformed into joint-stock companies shall handle provisions according to the law on equitization.

5. The balance of the provision for investments abroad made by the enterprise before the effective date of this Circular (if any) shall be reversed, recorded as a decrease in expenses at the time of preparing financial statements 2019.

In the course of implementation, any problem or recommendation should be timely sent to the Ministry of Finance for research, supplementation and amendment./.

For the Minister

The Deputy Minister

Huynh Quang Hai