Account 301- Tangible fixed assets

1. Accounting principles:

This account shall be used for recording the existing value, increase or decrease of all tangible fixed assets of a microfinance institution according to their historical costs.

Accountant may record entries on this account in compliance with the Vietnamese Accounting Standard No. 03 – Tangible fixed assets. Management, use and depreciation of fixed assets shall conform to the financial regime adopted by the Ministry of Finance, including:

a) Tangible fixed assets are those assets in physical form that a microfinance institution controls and uses for production, commercial or other purposes in accordance with standards for recording of tangible fixed assets prescribed in laws on management, use and depreciation thereof.

Fixed assets are those having independent structure or separate parts linked in a system for performance of one or several functions to the extent that the entire system is unable to operate in case of lack of any of such part. In this case, an asset can be considered as a fixed asset if it meets all four standards, including:

– It is certain that future economic benefits are gained from use of these assets;

– Historical costs of assets must be determined in a reliable manner;

– The useful life is more than 1 (one) year;

– They must have value in conformance to regulations in force.

If a system composed of separate parts linked together of which the useful life cycle is different remains able to perform its main function in case of lack of any of such part, but it and its parts need to be separately managed to meet managerial demands while conforming to all of 4 standards mentioned above, it must be considered as independent tangible fixed assets;

b) Value of fixed assets must be entered in the account 301 “Tangible fixed assets” according to their historical costs. Accountant must keep detailed record of historical costs of fixed assets according to their types and characteristics. Historical cost of fixed assets can be determined as follows:

– Historical cost of tangible fixed assets acquired through the procurement process, including: Purchase price (excluding trade discounts and promotional discounts), taxes (excluding tax refunds) and costs directly associated with making such asset ready for use, such as site preparation costs, initial shipping, loading, unloading costs, installation and testing costs (minus (-) gains from products or wastes collected from commissioning tests), expert fees and other directly associated costs. Loan interest costs incurred from purchase of completed fixed assets (fixed assets immediately in use without having to be installed or tested for construction purposes) shall not be capitalized into historical costs of these assets.

+ Historical costs of purchased tangible fixed assets for which deferred payments are made: They are deemed the price of a purchased fixed asset that is paid immediately at the time of purchase plus other directly associated costs as of the time when such asset is made ready for use (excluding tax refunds). The difference between the buy price paid in arrears and the one paid immediately is accrued into manufacturing and business expenses over maturity periods.

+ Historical costs of fixed assets which are real property: When purchasing real property, the accounting unit must distinguish value of land use right from value of land-attached property in accordance with laws. Portion of value of land-attached property is recorded as tangible fixed asset; value of land use right is accounted for as intangible fixed asset or prepaid expenses as the case may be in accordance with laws.

– Historical costs of tangible fixed assets which are acquired after the completed capital construction process.

+ Historical costs of fixed assets which are contracted out: These are the price at which all financial obligations arising from construction projects are settled as per laws, other direct associated expenses and registration fees (if any).

+ Self-constructed or self-made tangible fixed assets:

Historical costs of self-constructed fixed assets are value of finalization of financial obligations arising from projects for construction thereof when being put in use. If fixed assets have already been brought into operation, but have not been financially finalized yet, microfinance institutions can account for increases in historical costs of fixed assets at the temporarily calculated price, based on actual construction expenses. After the financial finalization of capital investments is approved, in case of any difference arising in comparison to value of fixed assets which has been temporarily calculated, accountants may make increasing or decreasing adjustments in historical costs of fixed assets.

Historical costs of self-made tangible fixed assets are the actual cost price of tangible fixed assets plus (+) expenses directly associated with making fixed assets ready for use.

+ In both cases mentioned above, historical costs of fixed assets are defined as installation costs and test run costs less value of products recovered from commissioning and manufacturing tests. Microfinance institutions shall not be allowed to include internal interest amounts and unreasonable expenses, such as costs incurred from raw ingredient or input material wastes, labor and other costs that are overspent during the process of self-construction or self-production, in historical costs of tangible fixed assets

– The historical cost of a tangible fixed asset purchased by a swap between it and another unmatched one or other asset is defined as the reasonable value of the received tangible fixed asset or the swapped asset after adjustments in sums or cash-equivalent amounts additionally paid or collected, plus costs directly associated with making such asset ready for use (exclusive of tax refunds).

Historical cost of a tangible fixed asset purchased by a swap between it and the similar one, or possibly acquired due to sale thereof in exchange for the right to own another similar asset (the similar asset is an asset having similar functions in the same business sector and equivalent value). In this case, there is none of losses or profits recorded in the swap process. Historical cost of the received fixed asset is calculated by the residual value of the fixed asset in exchange.

– Historical cost of the allocated and transferred tangible fixed asset includes: The residual book cost of the fixed asset that a microfinance institution allocates or transfers, or cost thereof determined according to the actual assessment by the Handover Committee or a professional valuation organization in accordance with laws, directly associated expenses, such as transportation, handling, upgradation, installation, commissioning testing costs and registration fees (if any), etc., which the recipient of such asset must pay till the date on which such fixed asset is made ready for use.

– Historical cost of the tangible fixed asset acquired by receiving contributed capital or taking back contributed capital is the cost on which founding members or shareholders determine by consensus; on which the microfinance institution and contributor of capital agrees; or which a professional body determines in accordance with laws and by common consent from founding members or shareholders.

– The historical cost of a fixed asset existing due to discovery of the surplus number thereof, offered, gifted or donated: This is the cost determined according to the actual assessment by the Handover Committee or a professional valuation body; and costs that the asset recipient must pay when making it ready for use, including: Transportation, handling, installation, commissioning test costs and registration fees (if any);

c) In case of purchase of fixed assets, including homes, architectural objects associated with the land use right, it is obligatory that value thereof recorded as historical costs of tangible fixed assets (A/C 301) and value of land use rights must be recorded as separate entries in historical costs of intangible fixed assets (A/C 302);

d) Calculation and depreciation of fixed assets shall be subject to the Ministry of Finance’s regulations on management, use and depreciation of fixed assets;

dd) Microfinance institutions may change historical costs of tangible fixed assets in accordance with laws on management, use and depreciation of fixed assets and other relevant ones;

e) In any cases where increases or decreases in fixed assets are made, accountants must prepare notes of transfer, sale or liquidation sale of fixed assets, and follow other prescribed procedures;

g) In all cases where fixed assets of a microfinance institution are decreased due to disposal, liquidation sale, loss or discovery of deficit after stocktaking, transfer to other entities and demolition or disassembly of one or several parts thereof, etc., accountants must carry out all required procedures and correctly identify losses and revenues (if any). Based on related vouchers, accountants must record bookkeeping entries in specific cases as follows:

– In case of disposal of fixed assets used in production and business activities: These fixed assets are usually those assets that do not need to be used or are considered as being inefficiently used. Disposal of these assets shall be accepted only when all prescribed procedures have already been completed.

– Fixed assets sold for liquidation purposes are those assets damaged to the extent of being unusable, those fixed assets that are technically obsolete or do not conform to operational and business requirements. Whenever there is any fixed asset needing to be sold for liquidation purposes, microfinance institutions must issue decisions on liquidation sale and establishment of Fixed Asset Liquidation Committee. This Committee shall undertake the task in liquidation sale of these assets according to regulations on regulatory documentation requirements and procedures for liquidation, and make a report on such liquidation sale. Bookkeeping bases include the liquidation report and other vouchers related to revenues and expenses arising from such liquidation sale;

h) Causes of any surplus or deficit of fixed assets need to be identified in all cases. Based on “Fixed asset inventory report” and conclusions of the Inventory Committee, accountants can account for the followings in an accurate, timely and cause-specific manner:

– In case of detecting surplus of fixed assets:

+ owing to being left outside of accounting books (not yet recorded in accounting books), accountants must consult fixed asset records to enter an increase in specific cases.

+ due to being determined as those under the control of other units, accountants must promptly inform this to the owners of such assets. Before any action is taken to deal with such situation, accountants must consult inventory documents and records to take temporary control and custody of these assets.

+ due to failure to identify their owners, accountants must record increases in other income according to reasonable value of these assets.

– Actions to be taken in case of discovery of deficit of fixed assets include identifying causes of such deficit, defining who will be responsible for such deficit and dealing with this situation in accordance with laws.

Based on “Report on treatment of deficient fixed assets” which has already been approved and fixed asset documents or records, accountants must determine their historical cost and depreciated value as a basis to record any decrease in these assets, and carry out the physical treatment of the residual part of these assets. Pursuant to decisions on how to treat these assets, accountants can enter them into relevant accounts;

i) Each fixed asset with its specifications must be recorded in detail according to data about its classification type, locations for its storage, use and management as specified in the “fixed asset log”.

2. Account 301 can be subdivided into tier-2 accounts, including:

3011- Residential homes and architectural objects

3012- Machinery and equipment

3013- Means of transportation and transmission

3014- Administrative equipment and tools

3019- Other tangible fixed assets

3. Structure and entries of the account 301:

Debit side: – Historical costs of tangible fixed assets increased due to completed commissioning, transfer and operation of capital construction projects, procurement, acceptance of contributed capital, reception of allocated ones, reception of these assets as gifts, donations, or discovery of surplus of any of such assets.

– Increasing adjustments in historical costs of fixed assets which are made owing to construction, additional furnishment or alteration, alteration or improvement of existing ones.

– Increasing adjustments in historical costs of fixed assets which are made owing to revaluation.

Credit side: Historical costs of fixed assets decreased owing to intracompany transfers, disposal and liquidation or use of such assets as capital contributions to joint ventures, etc.

– Historical costs of fixed assets decreased due to disassembly of one or several parts of these assets.

– Decreasing adjustments in historical costs of fixed assets which are made owing to revaluation.

Debit balance: – Historical costs of existing tangible fixed assets of a microfinance institution.

Detailed accounting: Accountants can use subaccounts for specific tangible fixed assets.