Official Dispatch 8062/BTC-QLKT 2022 regarding accounting instructions

To: Flow Trading Vietnam Company Limited Liability

In response to Official Dispatch No. 01/CV/BTC dated July 21, 2022 of Flow Trading Vietnam Company Limited Liability, providing guidance on accounting for debt trading activities, the Ministry of Finance gives the following opinions:

1. Regarding accounting for debt purchase operations

According to the Ministry of Finance’s Circular No. 200/2014/TT-BTC dated December 22, 2014, on guiding the corporate accounting regime (Circular 200):

- Article 15 stipulates that types of securities and financial instruments held for business purposes (buying and reselling for profit) will be monitored and reflected in Account 121 - Trading Securities;

- Article 16 stipulates that purchased held-to-maturity investments (holding until maturity to earn profit) will be monitored and reflected in Account 128 - Investments held to maturity.

Thus, in case the Company has a debt purchase transaction under the Contract, at the time of purchasing the debt, the Company must determine the purpose of purchasing that debt for business purposes (with the purpose of buying and reselling for profit according to Article 15 of Circular 200) or holding until maturity (with the purpose of holding the debt until it is paid by the customer according to the loan contract under Article 16 of Circular 200). Depending on the purpose of debt acquisition, accountants will:

(1) In case of purchasing debt for business purposes, the Company shall record an increase in the value of trading securities and account for Account 121- Trading Securities. When selling debt to other units, the Company shall record profits in financial turnovers or record losses in financial expenses.

(2) In case of purchasing debt with the purpose of holding until maturity, the Company will record an increase in the value of the investment held until maturity and account for Account 128 - Investments held to maturity. Periodically, when the Company collects loan profits, the Company shall account them as financial turnovers. Upon loan maturity date, the Company may receive the principal loan (according to the original contract) and reflect the difference between the amount received and the book value of the investment (according to the purchase price) as financial turnovers (if the Company has profits) or financial expenses (if the Company makes losses).

2. Regarding accounting for expenses arising from purchasing debt

For expenses directly related to the purchase of debt (such as brokerage fees, transaction fees, etc.), accountants shall record them and the original price of the debt already purchased.

3. Regarding deductions for provision according to accounting regulations

- In case the investment is classified as held-to-maturity: According to Point 3.6 Article 16 of Circular 200, no provision is made for this investment, but when there is evidence that part or all of the held-to-maturity investments may not be recoverable, the Company must evaluate the possibility and determine the value of investments that can be recovered. If the loss is reliably determined, the Company must record the loss (the difference between the recoverable value and the book value, in which the recoverable value is less than the book value of the investment) in financial expenses.

- In case the investment is classified as held for business purposes: According to Clause 1.2 Article 45 of Circular 200, if the Company has solid evidence showing that the market value of trading securities has decreased compared to the book value, the Company is allowed to deduct provision and included it in financial expenses.

Thus, both cases record losses as financial expenses, the only difference is the way of presentation on the financial statements (in case of deduction for provision, losses reducing the original price of the investment shall not be directly recorded).

4. Regarding accounting for investment reduction

In case the Company is unable to pay the debt for the seller, accountants shall, based on the value of the debt paid to the seller, record a decrease in the value of the investment and a decrease in the amount payable to the seller corresponding to the value of the debt repaid.

5. The determination of deductible turnovers and expenses to calculate income subject to enterprise income tax shall comply with current tax laws.

The Ministry of Finance hereby informs the Company for implementation./.