Accounting procedures for tangible fixed asets at minh hoang trading and transportation limited company,graduation théis

BASIC THEORY OF ACCOUNTING FOR TANGIBLE FIXED ASSETS

Overview of Fixed Assets

Fixed assets (FA) are essential long-term investments for businesses, designed to establish tangible fixed assets (TFA) or intangible fixed assets for effective production and operational processes This article primarily focuses on the significance of tangible fixed assets in enterprises.

According to Circular 45/2013/TT-BTC, tangible fixed assets (TFA) are defined as physical labor resources that meet specific criteria These assets play a crucial role in various business operations while retaining their original physical forms, which include buildings, structures, machinery, equipment, and transportation means.

The standards for values and time associated with fixed assets (FA) can fluctuate based on economic conditions, specific requirements, and management qualifications during different periods Presently, the most recent regulation governing fixed assets is outlined in Circular 45/2013/TT-BTC.

Means of labor refer to tangible assets that function as a cohesive system of interconnected parts, essential for performing specific functions To qualify as fixed assets (FA), these assets must meet three criteria: they are expected to generate future economic benefits, have a useful life of over one year, and their initial value must be reliably determined at 30,000,000 dong or more.

Fixed assets (FA) are valuable means of production that maintain their physical form throughout their usage Over time, a portion of their value is allocated to production and business expenses.

1.1.2 Management requirements and tasks of accounting for Tangible Fixed Assets

Every fixed asset (FA) in an enterprise should have a dedicated record that includes essential documents such as asset handover minutes, contracts, purchase invoices, and other relevant materials It is crucial to classify and number these assets statistically, ensuring each asset has its own identification card Detailed tracking of each asset is necessary, and all information must be accurately reflected in the FA register.

+ Each FA must be managed at cost, AD and RV in accounting books For

FA not involved in production and business activities, enterprises must also manage their historical costs, AD and RV in accounting books

+ For FA which have been fully depreciated but still engaged in business activities, enterprises still have to perform management like other FA

At the end of each fiscal year, businesses are required to conduct a fixed asset (FA) counting Any deficiencies identified during this process must be documented, with an investigation into their causes, followed by the implementation of corrective measures.

- Tasks of accounting for TFA

Accurately and promptly recording the quantity, current status, and value of fixed assets (FA) is essential for enterprises This includes monitoring increases, decreases, and movements of FA across various locations Additionally, it is crucial to inspect the preservation, maintenance, and utilization of these assets to ensure optimal performance and compliance.

+ Calculating and allocating correctly the depreciation of FA to production and business costs of the departments that used, manage and use effectively the investment capital formed from the depreciation

Effective planning and accurate cost estimation for fixed asset (FA) repairs are crucial for reflecting the actual expenses in production and business costs This process should align with the needs of FA users and involve regular checks on the implementation of the repair cost plan to ensure adherence to the schedule.

+ Instructing and inspecting the departments in the enterprise to fully implement the initial recording progress of FA, opening necessary books and

6 accounting according to the prescribed regime; checking and monitoring the situation of increase or decrease of FA closely

Engaging in the counting and revaluation of fixed assets (FA) in accordance with government regulations is essential for preparing comprehensive reports that analyze equipment status This process facilitates the optimal utilization of fixed assets, ultimately enhancing economic efficiency.

+ Tangible assets: these assets are manifested in specific forms of artifacts such as houses, machinery and equipment…

Intangible assets are non-physical resources that represent significant value invested in various business operations These assets include costs associated with establishing a business, research and development expenses, invention patents, and trademarks, all of which play a crucial role in the production cycles of an enterprise.

+ Operating assets: FA used in production and businesses are tangible and intangible FA directly involved in the enterprise‟s production and business process Including: buildings, structures, transmission equipment…

+ Non-operating assets: FA used outside production and business: are FA not of production and business nature Including: houses, facilities for cultural activities and welfare facilities

+ FA being used are those used for production and business activities or other activities of enterprises such as welfare, career, national defense and security activities

+ Unused FA are those that are necessary for activities of the enterprise, but are not needed at the moment and are being reserved for later use

+ Unused and waiting for liquidation assets are those unnecessary or unsuitable for the enterprise„s production and business task, must be liquidated or sold to recover the initial invested capital

+ Type 1: Housing and structures: are the enterprise‟s FA formed after the construction process, such as head office, warehousing, fences…

+ Type 2: Machinery and equipment: the whole machinery and equipment used in the business operation of the enterprise namely specialized machinery, working equipment…

+ Type 3: Means of transport including railway, road and transmission equipment such as information system, electrical system…

+ Type 4: Equipment and management tools: are the equipment and tools used in the management of the enterprise‟s business operations such as computers for management, electronic equipment…

+ Type 5: Perennial orchards, working animals and /or giving products

+ Type 6: Other types of FA: are all other FA not listed in the above five types such as pictures

+ Owned FA: are FA invested, purchased or built by the enterprise with equity These are reflected in the enterprise's balance sheet

+ Outsource FA: depending on the terms of the contract, the outsourced FA may be divided into financial lease FA and operating lease FA

Operating leases involve fixed assets (FA) that an enterprise leases for a specific duration as outlined in the contract Upon the expiration of the lease agreement, these assets must be returned to the lessor.

A financial lease occurs when an enterprise hires assets from financial companies, provided the lease contract meets at least one of the following criteria: the lessee has the option to own the leased property or extend the lease at the end of the term; the lessee can purchase the leased property at a nominal price significantly lower than its market value upon redemption; or the lease duration is at least 60% of the asset's depreciation period.

8 d The total rent of the property must be at least equal to the price of that property on the market at the time of signing the contract

+ FA are formed from owner's equity

+ FA are formed from liabilities

1.1.4 Evaluation of Tangible Fixed Assets

1.1.4.1 Determining the initial value (historical cost) of Tangible Fixed Assets

The initial value of a fixed asset (FA) encompasses all expenses incurred by a business to prepare the asset for use This aligns with the historical cost principle, which emphasizes that assets should be recorded at their original cost.

FA must be determined at cost and depending on each formation case to determine the historical cost of TFA

The history cost of TFA purchased assets encompasses the purchase price (excluding commercial discounts), taxes (excluding refundable taxes), and direct expenses necessary to prepare the assets for use This includes costs related to ground preparation, initial transportation for loading and unloading, trial installation expenses (excluding recoveries from trial runs), expert fees, and other directly associated costs.

Accounting of Tangible Fixed Assets in enterprises

- Minutes of delivery and receipt of TFA

- Minutes of revaluation of TFA

1.2.2 Detailed accounting for Tangible Fixed Assets

The FA card serves as a comprehensive voucher and record-keeping tool for tracking fixed assets (FA), detailing their costs, depreciation, usage location, management, capacity, and design area It is created during the FA handover process, relying on the minutes documented during the transfer.

FA cards are uniquely numbered and issued by the FA accountant, with the chief accountant reviewing and the director approving each card These cards are securely stored in the accounting department throughout the asset utilization period.

The FA book is a centralized asset management tool for enterprises, designed to register, monitor, and meticulously manage fixed assets from the point of purchase through their usage until their disposal Each section or page of the book corresponds to a specific type of fixed asset, such as buildings, machinery, and equipment, ensuring comprehensive oversight throughout the asset's lifecycle.

1.2.2.3 FA book at the using department

This book serves as a vital tool for monitoring and managing the fluctuations in fixed assets (FA) and the tools and supplies allocated to each department It provides a reliable basis for comparison during periodic inventory counts, ensuring accurate tracking of inventory changes over time.

1.2.3 General accounting for Tangible Fixed Assets

According to Circular 133 / TT-BTC, FA are recorded with Account 211 and second-level accounts include:

- Historical cost of TFA due to procurement, capital construction completed and put into use, exchange of FA

- Adjustment to increase in cost due to assembly, retrofit, renovation and upgrade

- Other cases increase the cost

- Counting to discover excess FA

- Historical cost of TFA decreases due to transfer to another place, sale, liquidation or capital contribution

- Historical cost of FA decreased by removing some tools

- Other cases reduce the historical cost of FA

Debit balance: Historical cost of existing FA in the enterprise

Circular 133/2016/TT-BTC simplifies the presentation of Tangible Fixed Assets (TFA) in financial statements by requiring only account 2111 to be reported, in contrast to Circular 200/2014/TT-BTC, which utilized six second-level accounts Despite this simplification, detailed classification and monitoring of FA remain essential, necessitating the maintenance of an "FA book" that categorizes assets by type—such as buildings, machinery, transportation means, office equipment, perennial plants, working animals, and other fixed assets—while also considering their preservation, usage, and management.

In addition, in the accounting process, accountants also use some other relevant accounts: Account 331, Account 112, Account 111, Account 411…

1.2.3.2 General accounting for increase in TFA in the enterprise

TFA of enterprises increased due to many reasons such as: procurement, construction, self-made, exchanging, being donated The following diagrams represent some typical cases of increase in TFA:

12 a Accounting for increase in TFA purchased outside by the mode of deferred or installment payment

Diagram 1.1 Accounting for increase in TFA purchased outside by the mode of deferred or installment payment total payable

& immediate payment price included VAT (deferred interest)

Periodically, when payment is made to the seller

Cost (Immediate payment price) payable

242 according to deferred interest must paid in each period

13 b Accounting for increase in TFA purchased outside which used in production and business activities (Tax credit method)

If FA purchased with scientific & technological fund

Trade discount, discount of purchased FA

Import tax must be paid when FA imported

FA purchased for immediate use

When FA are put into use

If the FA purchased with welfare used for collective welfare activities used for scientific and technological R&D

If FA purchased with welfare funds used for production and business

If FA purchased with equity funds used for production and business

VAT of imported FA (non-deductible tax) Excise tax of imported FA (if any)

Diagram 1.2 Accounting for increase in TFA purchased outside which used in production and business activities (Tax credit method)

14 c Accounting for increase in TFA purchased in the form of exchange

* Where the tangible FA purchased in exchange with similar FA

* Where the TFA purchased in the form of exchanging with dissimilar FA + When put the FA away to exchange

Diagram 1.3 Accounting for increase in TFA purchased in the form of exchange put away to exchange

211- FA (put away to exchange)

Cost of FA put away to exchange

(RV) Cost of received FA

Receive extra amount to be collected Pay the extra amount

33311 is put away for exchange

FV of FA FV of FA

211- FA (put away to exchange)

Record reduction of FA to be exchanged put away to exchange

15 d Accounting for increase in TFA which are self-manufactured

Diagram 1.4 Accounting for increase in self-manufactured TFA e Diagram of tangible TFA increased due to capital construction

* Where accounting on the same accounting book system:

* Where accounting on the different accounting book systems:

Diagram 1.5 Accounting for increase in TFA due to capital construction

Expenses for self-manufactured of FA

632 convert into FA used for production & business

111,112 211 (2111) in excess shall not be included in the cost of FA

Price of manufactured products transferred to warehouse converted into FA used for production and business Total of production costs incurred

When the capital construction works are completed,

1388 & other related accounts handed over and put into business production use for

Adjustment to increase Adjustment to decrease the cost of FA the cost of FA

(Value which is not approved for final settlement)

In case the formed FA do not meet the conditions for recognition of FA

(including receiving payables) temporarily calculated price 1332

Capital sources which form FA to be handed over cost after settlement

1.2.3.3 General accounting for decrease in TFA in the enterprise a Accounting for decrease in TFA used in production and business activities due to liquidation or sale

Closing entry for expenses of Liquidation & sale of FA expenses liquidation or sale of FA

Other income for sale, liquidation of FA

Transfer proceeds from liquidation or sale of

Transfer difference of revenue > expenditure

Transfer difference of revenue < expenditure

Diagram 1.6 Accounting for decrease in TFA used in production and business activities due to liquidation or sale

17 b Accounting for decrease in TFA due to conversion into tools and supplies

As a result of the change in the standard of recognition of FA value which is Circular 45/2013 / TT / BTC dated June 10, 2013; all FA with a value of less than

Thirty million items will need to be classified as tools and supplies For certain fixed assets (FA), after a period of use and subsequent evaluation as unqualified, they are reclassified as tools and supplies to meet accounting standards.

Diagram1.7 Accounting for decrease in TFA due to conversion into tools and supplies c Accounting for decrease in TFA used from bonus and welfare fund due to liquidation or sale

TFA used for bonus and welfare are likely to be liquidated or sold when the enterprises no longer need to use:

Diagram 1.8 Accounting for decrease in TFA used from bonus and welfare fund due to liquidation or sale

FA converted into tools & instruments

FA converted into tools & instruments

Income from the sale of TFA recorded an increase in welfare fund Amount used from welfare fund for sale of TFA Write-off welfare fund

18 d Accounting for decrease in TFA due to contributing capital into other enterprises

When financial assets (FAs) are idle or the enterprise determines that the invested FAs could yield greater profits, these assets can be utilized to provide capital to other entities.

Diagram 1.9 Accounting for decrease in TFA due to contributing capital into other enterprises

Accounting of depreciation of Tangible Fixed Assets

1.3.1 Definition of depreciation of Tangible Fixed Assets

- Circular 45/2013/TT-BTC defines depreciation as “the systematic allocation of the depreciable value of TFA throughout the useful life of such assets”

- Depreciable value is the historical cost of TFA recorded on financial statements, minus the estimated liquidation value of such assets

1.3.2 Principles of depreciation of Tangible Fixed Assets

According to the Ministry of Finance's current regulations, all tangible fixed assets (TFA) associated with business operations must undergo depreciation, with the depreciation amount recorded as production and business expenses for the relevant period However, TFAs not utilized in production and business activities are exempt from depreciation.

- FA that have been fully depreciated but are still used in production and business activities

- FA are lost during depreciation

- Other FA managed but not owned by enterprise

Increase contribution capital in other entities (revaluation price)

Difference between revaluation price < RV of FA

- FA that are not managed, monitored and recorded in the enterprise‟s accounting books

- FA are used in welfare activities to serve the enterprise‟s employees

- FA from the non-refundable aid after the competent agencies have handed them over to enterprises in service of their scientific research

1.3.3 Methods of depreciation of Tangible Fixed Assets

The straight-line depreciation method calculates the annual depreciation expense by evenly distributing the cost of fixed assets over their useful life, thereby integrating this stable rate into a business's operating costs.

Enterprises with high economic efficiency can accelerate depreciation, but it cannot exceed twice the straight-line depreciation rate to keep pace with rapid technological innovation The fixed assets eligible for accelerated depreciation include machinery, equipment, experimental instruments, transportation means, management tools, animals, and perennial orchards However, businesses must ensure they remain profitable while utilizing this method of depreciation.

The depreciation rate by the straight-line method is determined as follows:

If the useful life or cost of fixed assets (FA) changes, the company must recalculate the average depreciation of total fixed assets (TFA) by dividing the book value by the newly established useful life or remaining useful life of the TFA.

The straight-line method of depreciation is favored for its simplicity and ease of application, as it evenly distributes the total depreciation expense over a fixed period This approach minimizes fluctuations in annual depreciation costs and product expenses, making it ideal for assets that perform consistently throughout their lifespan.

The straight-line depreciation method has notable disadvantages, particularly for expensive assets like plants and equipment, as it fails to consider the decline in efficiency and rising repair costs over time Additionally, the method is inappropriate for assets with an unpredictable functional lifespan, making it less reliable in certain situations.

The FA involved in business operations are depreciated by the adjusted reducing balance method must meet the following conditions:

- Being new FA (not used);

- Being machinery, equipment, experimental and measuring instruments According to this method, the annual depreciation expense of TFA is determined as follows:

The adjustment coefficient depends on the estimated useful life of FA:

Time of depreciation of FA Adjustment coefficient (time)

Over 4 to 6 years (4 years t 6 years) 2,0

Advantage of adjusted reducing balance method: help businesses recover capital in the early years Moreover, enterprises are likely to gain tax benefits under this depreciation method

The adjusted reducing balance method has notable disadvantages, particularly in the early years when product prices may be elevated due to significant depreciation costs This can hinder businesses in competitive pricing scenarios Additionally, for products or business types with slow consumption rates, this method can adversely impact the overall financial results of the company.

1.3.3.3 Method of depreciation based on volume

The FA involved in business operations are depreciated under this method are machinery and equipment which meeting all the following requirements:

+ Directly related to product making;

+ Determining the total number and volume of products made by design capacity of FA;

+ The actual capacity per month in the fiscal year is not less than 100% of design capacity

The monthly rate of depreciation of FA is calculated as:

- Annual rate of depreciation of FA is equal to the total depreciation rate of 12 months in a year or by the following formula:

Depreciation based on volume offers significant advantages, particularly for assets with fluctuating activity levels across different periods This method ties the depreciation rate directly to the quantity of products produced, ensuring that cost allocation and pricing accurately reflect the actual level of activity.

Disadvantages of depreciation based on volume: The depreciation process can become quite complicated if the management skills are poor and time recording is not taken accurately

1.3.4 Accounting of depreciation of Tangible Fixed Assets

The accounting depreciation of fixed assets (FA) is primarily determined using a "Spreadsheet of Depreciation." At the end of each month, quarter, or year, the FA accountant allocates depreciation to production and business costs, accurately reflecting its fluctuations Subsequently, depreciation is distributed to overhead and administrative costs based on the intended purpose and utilization of the tangible fixed assets (TFA).

Accountants utilize Account 2141 to monitor the depreciation of Tangible Fixed Assets (TFA), which reflects the overall depreciation of all TFA owned by the business This account is essential for tracking any increases or decreases in TFA depreciation over time.

This reflects the decrease in depreciation of FA due to reduction reasons

This reflects the increase in depreciation of FA due to depreciation and revaluation of FA

Credit balance: depreciation value of existing FA at the enterprise

1.3.4.3 Depreciation accounting diagram of Tangible Fixed Assets

632 Investment properties in operating leases

RV Return the leased assets to the lessor

Depreciation of FA used for cultural and welfare activities

Cost Liquidation Periodic depreciation of FA

Diagram 1.10 Accounting for depreciation of FA

Accounting for repair, maintenance and revaluation of Tangible Fixed Assets

1.4.1 Accounting for repair, maintenance of Tangible Fixed Assets

To ensure the proper functioning of fixed assets (FA) that may sustain damage during use, businesses must perform necessary repairs, maintenance, and part replacements Repairs are categorized into two types based on the severity of damage: ordinary repairs and major repairs.

1.4.1.1 Ordinary repair of Tangible Fixed Assets

Ordinary repairs are essential for maintaining fixed assets (FA) in operational condition and typically provide benefits only during the period in which they are completed These repairs involve simple techniques and require a short amount of time, with costs representing a small fraction of the overall business expenses As a result, ordinary repairs are classified as revenue expenditures and are expensed in the period they occur.

1.4.1.2 Major repair of Tangible Fixed Assets

Major repairs of fixed assets (FA) involve complex techniques and can be time-consuming When such repairs aim to enhance and upgrade the FA, the overall cost may increase once the overhaul is completed, provided certain conditions are met All expenses related to the repair process must be recorded as "Major repair of FA" upon its conclusion.

1.4.2 Counting and re-evaluating Tangible Fixed Assets

Before preparing financial statements, businesses must count and re-evaluate their tangible fixed assets (TFA) in compliance with accounting regulations Various scenarios may arise during the counting and re-evaluation of fixed assets.

In the process of conducting a financial audit, any case that reveals a deficiency in total financial assets (TFA) must be documented This includes investigating the underlying causes, identifying the responsible individual, and enforcing strict compliance with the existing financial regulations and enterprise policies.

When identifying unrecorded fixed assets (FA) during inventory checks, the inventory council must investigate the source of the surplus FA and implement suitable actions for each situation.

The periodic revaluation of fixed assets (FA) is crucial for enterprises, as it ensures that their values accurately reflect current market prices This practice is essential for maintaining the integrity of accounting records and financial statements, allowing businesses to present their real asset values effectively.

The arising events after initial recognition

The VAS 23 and VAS 29 issued in pursuance of the Ministry of Finance Decision No.12/2005/QD-BTC dated 15/2/2005

1.5.1 VAS 23- Events after balance sheet date

Events occurring after the balance sheet date can significantly influence financial statements, either positively or negatively These events arise between the balance sheet date and the authorization or issuance of the financial statements.

This standard‟s object is to give guidance on accounting treatment to events after balance sheet date, including:

- Adjusting events after the balance sheet date: those events that provide evidence of conditions that existed at the balance sheet date

- Non-Adjusting events after the balance sheet date: those events that are indicative of conditions that arose after the balance sheet date

1.5.2 VAS 29 - Changes in accounting policies, accounting estimates and errors

- Accounting policies are the specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements

-A change in accounting estimates is an adjustment of the carrying amounts of an asset or a liability, or the amount of the periodic consumption of an asset that

The assessment of the current status and anticipated future benefits of an asset and liability yields 25 results, highlighting the importance of understanding these financial elements It's crucial to note that changes in accounting estimates arise from new information and do not constitute corrections of errors.

Material omissions or errors in financial statements can significantly impact users' economic decisions The materiality of these misstatements is assessed based on their size and nature within specific contexts Both the magnitude and the characteristics of the omitted or misstated items play crucial roles in determining their materiality.

Retrospective application involves implementing a new accounting policy standard to transactions or events as though it has always been in effect In contrast, retrospective restatement corrects the recognition, measurement, and presentation of financial statement elements, treating prior period errors as if they never happened.

The non-retrospective application of changes in accounting policies means that new accounting policies are applied only to transactions and events occurring after the change is made Additionally, the effects of changes in accounting estimates are recognized for the current and future periods, reflecting the impact of these changes moving forward.

Accounting forms applied in accounting Tangible Fixed Assets

According to Appendix 4 of Circular 133 / TT-BTC dated June 28, 2016 of the Ministry of Finance, the form of accounting book includes the followings:

- Accounting form of General journal

- Accounting form of Journal- Ledger

Minh Hoang has opted to utilize the General Journal accounting method, enhanced by the use of accounting software This section will focus on elucidating the General Journal accounting approach.

* Accounting form of General journal

+ Basic principles and characteristics of the General journal accounting form:

All economic and financial operations must be chronologically recorded in the General Journal, reflecting the economic content of each transaction Subsequently, data from the journals is transferred to the Ledger for accurate transaction tracking The General Journal encompasses several key types of accounting books.

- General journal, Special journal book;

- Detailed accounting books and cards

+ Order of recording accounting books in the form of General Journal:

Daily transactions are initially recorded in the General Journal using tested vouchers as a reference Subsequently, these entries are transferred to the Ledger, aligning with the appropriate accounting accounts If the entity maintains detailed accounting books and cards, the arising transactions are simultaneously documented in these detailed records alongside the General Journal entries.

When an enterprise maintains Special journals, it should record transactions based on the relevant vouchers, either daily or periodically At the end of the month or as needed, the enterprise must consolidate each Special journal and use this information to update the appropriate accounts in the Ledger, ensuring that any duplicate transactions recorded across multiple Special journals are excluded.

At the end of each month, quarter, or year, it is essential to compile the figures from the Ledger and prepare a Trial Balance This process involves matching the data recorded in the Ledger with the detailed summary sheet derived from detailed ledgers and accounting cards to create accurate financial statements Importantly, the total Debit and Credit amounts in the account balance sheet and General Journal must be equal, ensuring accuracy and consistency, especially after excluding any duplicate entries in the Special Journals for the same period.

Record at the end of the month, or periodically

Detailed accounting books and cards

Diagram 1.11 Process of recording accounting books in the form of General Journal

+ Basic characteristics of accounting forms on computers:

Accounting tasks are conducted using specialized computer accounting software, which is built on one or a combination of three primary accounting methods While this software may not display the entire bookkeeping process, it is essential for generating comprehensive accounting records and financial statements as required.

+ Order of recording accounting books in the form of computer accounting:

Each day, accountants utilize accounting documents and inspection sheets to accurately record transactions and determine debit and credit accounts This data is then input into accounting software using predefined tables and templates Following the software's processing, the information is automatically recorded in the general accounting books, such as the Ledger or Journal-Ledger, along with related detailed accounting records and cards.

At the end of each month or as needed, accountants close the books and prepare financial statements, ensuring accuracy through automated comparisons of aggregated and detailed figures They can verify the consistency between accounting records and financial statements after printing Additionally, both general and detailed accounting books are printed, bound, and processed according to legal requirements at the end of the month and year.

Print books, report at the end of the month and year

Sheet of documents in the same type

Chapter 1 presented the basic theories about TFA accounting in enterprises as guided in the circulars prescribed by the Ministry of Finance In order to perform well accounting of TFA, enterprises need to thoroughly understand and strictly follow these accounting treatments, with a view to applying accurately and handling promptly if there are any errors occur The current situation of implementing and evaluating the procedure of accounting TFA at Minh Hoang Trading and Transportation LTD will be clearly presented in Chapter 2

CURRENT SITUATION OF ACCOUNTING PROCEDURES FOR

Overview of Minh Hoang Trading and Transportation Limited Company

2.1.1 History of establishment and development of Minh Hoang Trading and Transportation Limited Company

* History of establishment and development

Minh Hoang Trading and Transportation LTD, established in 2002, boasts nearly 20 years of experience in the import and export transport sector The company specializes in the purchase and sale of crawler and tire cranes, providing reliable oversized and overweight transportation services that have earned the trust of both domestic and international contractors.

With years of experience and a skilled workforce, the company has established itself in its industry, adhering to the motto "cooperation to succeed." This dedication has enabled the company to successfully participate in numerous large-scale projects.

- Dung Quat-Quang Ngai oil refinery, Nghi Son – Thanh Hoa oil refinery

- Vinh Tan thermal power, Binh Thuan, Tra Vinh coastal thermal power

- Lach Huyen, Cai Mep, Phu My and Cai Lan expansion ports …

- Thanh Tri, Nhat Tan, Tan Vu – Lach Huyen bridge, Thu Thiem tunnel

- Transportation equipment for cement factories, thermal power plants, hydroelectricity plants …

- Transportation of 160-tons cable cars in Phu Quoc Island – Kien Giang which is also known as the world‟s longest cable car

- Transportation of all carriages of Cat Linh – Ha Dong railway project

- Transportation of the entire Huong Linh – Quang Tri province wind power

- Name: Minh Hoang Trading and Transport LTD

- Legal form: Limited Liability Company

- Head office: 308 Le Thanh Tong Street, May Chai Ward, Ngo Quyen District, Hai Phong City, Vietnam

- Email: minhhoang.coltdhp@gmail.com

2.1.2 Functions, missions and specialized business sector

To ensure financial autonomy and safety, it is crucial to focus on self-financing and the effective use of capital sources This includes rational utilization of resources while adhering to regulatory frameworks and fulfilling obligations to the national budget.

As a premier transportation company in Vietnam, we offer high-quality transport services utilizing advanced equipment imported from countries like Japan, Germany, and the United States Our unique capabilities position us to effectively meet the growing demands of upcoming projects in the region.

- Organizing multi-sector business and production activities, in which the main business is to provide transportation services and to rent construction machinery for large-scale projects throughout Vietnam

- Frequently do market research to deploy, bid projects

- Recruiting and training teams of professional technical workers

The company has 44 officially registered business lines in the Business Registration Form Some main business lines are:

- Leasing machines, equipment and other tangible equipment

- Mechanical; Metal processing and coating

- Direct support services for rail and road transport

2.1.3 The organizational management structure of the enterprise

Representative office in Nha Trang

Parking for car cranes at

Representative office in Da Nang

Source: Minh Hoang Trading and Transportation LTD

Diagram 2.1 Organization management structure of Minh Hoang Trading and Transportation

Functions and duties of the departments are as follows:

The Board of Members, consisting of founding members who invest capital in the company, plays a vital role in its governance The Chairman, elected by this Board, is the primary capital contributor and leads the company This Board is responsible for making key strategic decisions, guiding the company's development direction, and overseeing the appointment and dismissal of essential positions within the organization.

- Board of directors includes: Director, Deputy Chief Financial Officer and Deputy Chief Technical Officer

- Director: directly manages all daily business activities of the company, the director is decided by the Board of members and performs the company‟s goals with support from functional departments

- Deputy Chief Financial Officer: The main task is to inspect and manage related to finance; accounting activities, examine operating plans, review recruitment and personnel training decisions

The Deputy Chief Technical Officer is responsible for developing a long-term technical vision and strategy at the management level This role includes direct oversight of technical quality control and the management of consulting activities, which involves collaborating with experts and allocating technical resources to effectively execute contracts.

The sales department of the company is structured with one sales manager and eight employees dedicated to organizing and executing business activities It consists of two primary divisions: the trading business division, which focuses on the trade of construction steel, and the service activities division, primarily engaged in shipping agency operations.

- Human resources Department: has 1 HR manager and 4 employees, in charge of administrative work and recruitment, human resource management in the company

The Finance and Accounting Department consists of a chief accountant, four accountants, and a cashier, responsible for executing accounting operations and maintaining accurate bookkeeping This department plays a crucial role in updating financial records, generating reports, and providing strategic advice to directors regarding the company's financial and accounting activities.

The Engineering Department is comprised of one Engineering Manager, four qualified engineers, and approximately 200 technical workers Its primary responsibilities include conducting research and performing regular technical monitoring to facilitate the procurement of new machinery and the repair of existing equipment Additionally, the department collaborates with the sales team to manage budgeting and cost calculations effectively.

Dinh Vu Port offers designated parking space for truck cranes, serving as a central hub for these vehicles Additionally, the facility includes a small repair and maintenance workshop, ensuring efficient periodic servicing of the machinery.

- Representative offices: Since the company often has projects in Nha Trang and Da Nang, 2 representative offices have been opened in order to support transactions and operation

2.1.4 Performance indicators of Minh Hoang Trading and Transportation Limited Company

Items Value (VND) Vertical Analysis(%) Horizontal Analysis(%)

Source: Minh Hoang Trading and Transportation LTD

Table 2.1 Performance indicators of Minh Hoang Trading & Transportation LTD

The analysis of the table indicates that fixed assets (FA) constitute a significant portion of total assets A horizontal analysis reveals a minor fluctuation of 12.1% between 2018 and 2019, while FA increased by 74.8% in 2018 compared to 2017 This substantial variation is attributed to the company's liquidation of FA at the beginning of 2018, followed by the acquisition of high-value FA towards the end of the year Consequently, the balance of FA rose significantly, as the accumulated depreciation on the liquidated assets was written off, and the newly acquired assets contributed to a considerable increase in FA with minimal depreciation Given that the company’s assets are primarily comprised of FA, these fluctuations are noteworthy.

FA also affected the growth of total assets

From 2017 to 2019, the income statement reveals a consistent upward trend in both revenue and profit Notably, profit surged by an impressive 106% in 2019 compared to 2018, primarily driven by increased revenues.

35 generated from the contract signed with Vestas Further research shows that this project with Vestas mostly uses the aforementioned huge-valued FA bought in

2018 In other words, growth in profit item on the company‟s Income statement indicates that the investment in FA has, at first glance, brought positive results

Source: Minh Hoang Trading and Transportation LTD

Table 2.2 Financial ratios of Minh Hoang Trading and Transportation LTD

From 2017 to 2018, both fixed asset (FA) turnover and total assets turnover showed a decline, indicating inefficient use of fixed assets However, from 2018 to 2019, these metrics improved, suggesting the company successfully enhanced revenue generation from its fixed asset investments The increase in the basic earning power (BEP) ratio during this period further indicates improved income generation from total assets Additionally, other key financial ratios, including operating profit margin, return on assets (ROA), and return on equity (ROE), also demonstrated upward trends from 2017 to 2019, reflecting a positive outlook on the company's performance.

2.2 Implementation of accounting practice in Minh Hoang Trading and Transportation Limited Company

2.2.1 Organization of the accounting apparatus

Minh Hoang is a medium-sized business that utilizes a centralized accounting system, where documents from various functional departments are collected and forwarded to the accounting department This department is responsible for monitoring, processing, and recording these documents, ultimately preparing financial statements.

Source: Minh Hoang Trading and Transportation LTD

Diagram 2.2 Organization of the accounting apparatus in Minh Hoang Trading and

+ Directly organize and supervise the setting up of budget

+ Directly monitor the company‟s capital and cash, relationships with banks and credit institutions

+ Analyze each company‟s expense item, proposed cost reduction measures + Check the implementation of the already elaborated financial plan

+ From the results of counting, assess the use and management situation of capital, promptly detect cases that cause loss, damage then propose appropriate measures

+ Keep track of the reports, evaluate the implementation of the company‟s cost plan, on a monthly, quarterly and yearly basis, propose reasonable measures

+ Gather data from detailed accounting to conduct general accounting, make accounting reports, statistics and summarize

+ Providing professional guidance for accounting practice where necessary

- Track and aggregate sales data to make reports to send to the general accountant

- Make receipts and pay-slip for the company‟s payments, reflect into the books related to the daily accounting practice and collate with the cash book

- Check and summarize the company‟s final settlement of cash, cash in bank, cash in transit, advances, salaries, social and health insurance, exchange rate differences

- Calculate salary and salary deductions, set up payroll according to the company‟s regulations and based on timesheets, labor contracts

- Collect input / output vouchers as a basis for monthly/quarterly/ yearly tax finalization: Reports on VAT, CIT, PIT, situation of using invoices, and prepare year-end financial statements

To effectively manage fixed assets (FA), it is essential to record and aggregate their quantity and value, monitor fluctuations in their status across the entire company and individual divisions, and provide regular updates on their preservation and maintenance Additionally, it is important to outline plans for the renovation of FA to ensure optimal functionality and longevity.

- Calculate and correctly allocate the depreciation of FA into production and business costs in accordance with the level of depreciation of assets and the prescribed regime

- Monitoring the situation of changes in import and export of supplies, goods, counting and management in terms of quantity and value of assets in the warehouse

Current situation of accounting procedure for Tangible Fixed Assets at Minh Hoang

2.3.1 Characteristics of accounting Tangible Fixed Assets at Minh Hoang Trading and Transportation Limited Company

Operating in the field of commerce and transport, the company has revenue mainly coming from providing transport services and leasing construction machines, equipment and overweight, oversized cranes

The company's fixed assets (FA) are primarily sourced domestically, with specialized machines and cranes imported from countries like Japan, Germany, Korea, and the United States, tailored to the company's specifications This results in a diverse and specific range of fixed assets, with machinery, equipment, transportation means, and buildings constituting a significant portion of the total FA Additionally, the company utilizes management equipment, including computers and vehicles.

To facilitate the management and use of FA in business activities, enterprises shall classify TFA according to economic uses, specifically as follows:

- Buildings and structures: offices, workshops to assemble, repair and upgrade FA

- Machinery and equipment: forklifts, rough terrain cranes, crawler cranes, rubber-tyred cranes, generators

- Means of transportation and transmission: truck, trailer tractor truck, semi- trailer…

- Management equipment: computers, monitors for surveillance cameras…

FA are primarily located in the parking lot at Dinh Vu port or on the construction site The company selected Dinh Vu port as its main parking lot due to its proximity, which enhances convenience and facilitates effective management.

Vouchers associated with TFA are meticulously prepared and managed by the warehouse and FA accountant, along with the chief accountant, from the point of purchase until their utilization and subsequent liquidation and sale These reports are then submitted to the Board of Directors for approval.

2.3.2 Detailed accounting for Tangible Fixed Assets at Minh Hoang Trading and Transportation Limited Company

2.3.2.1 Detailed accounting of Tangible Fixed Assets at the using department

To effectively monitor the usage of Tangible Fixed Assets (TFA) during fluctuations in inventory, the "FA book at the using department" will be utilized to track TFA utilization and assign responsibility for its management to specific departments This documentation is informed by the usage requirements of each division, the Board of Directors' decisions, and relevant records such as VAT invoices and asset delivery receipts In cases where TFA is imported, the customs declaration form serves as a substitute for the VAT invoice.

In the accounting department, accountants create "FA cards" to accurately track and document the status of fixed assets (FA) within the FA books, monitoring fluctuations such as increases, decreases, depreciation, and liquidation.

The engineering department has acquired two quad-axle semi-trailers at a total cost of VND 2,735,834,300 According to the handover minutes of fixed assets (Document 2.1), the using department is responsible for documenting these assets in the "FA book at the using department" (Document 2.2).

2.3.2.2 Detailed accounting of Tangible Fixed Assets at the accounting department

At the accounting department, the accountants use FA cards and the company‟s FA ledger to monitor the increase, decrease, depreciation of FA

An FA card is created during the handover of Fixed Assets (FA) and is based on the documented minutes of delivery and receipt Each Fixed Asset is assigned a unique FA card, which is numbered consecutively for easy identification.

2.3.3 General accounting for Tangible Fixed Assets at Minh Hoang Trading and Transportation Limited Company

2.3.3.1 Accounting of increase in Tangible Fixed Assets

The essential documents required for asset procurement include the Board of Directors' decision report, the procurement contract for fixed assets (FA), the minutes of the asset handover to the using department, and the VAT invoice For imported assets, additional documentation such as VAT invoice replacement documents, import documents, and proof of payment to tax authorities (if applicable) are also necessary.

- Accounts used: Account 2111, Account 411, Account 414, Account 441, Account 331, Account 1332, Account 33312…

Upon completion of the TFA acquisition, the assets will be transferred to the using department, and the accounting department will obtain a comprehensive set of purchasing records This documentation will include essential accounting vouchers such as VAT invoices, the Minutes of Handover of Fixed Assets (Document 2.1), and the Fixed Assets book from the using department.

(Document 2.2), Import documents (if any) …

The warehouse and fixed asset (FA) accountant will verify documents and update the fixed asset (FA) card to reflect the increase in TFA, followed by bookkeeping activities Utilizing accounting vouchers, they will identify the Debit and Credit accounts and input the data into the accounting software The FA book is essential for tracking the company's fixed assets As per the accounting software process, information is automatically updated in the General Journal and subsequently in the ledgers, including account 2111, account 112, and other relevant ledgers.

The chief accountant then will receive all the accounting vouchers and books, check and sign where necessary as approval

The Engineering department has approved the purchase of two new quad-axle semi-trailers for a total contract value of USD 115,000 This amount, when converted at the current bank rate, equals VND 2,735,834,200, which includes a purchase price of VND 2,677,290,000 and a registration fee of VND 58,544,200 Additionally, a 10% VAT on import goods is applicable.

The company initiates a deposit and establishes a letter of credit (LC) for its foreign suppliers Upon receiving the goods, the accountant processes the VAT and any applicable import taxes Subsequently, the engineering department collaborates with the supplier for commissioning and acceptance, with the supplier covering the costs of test runs Concurrently, all acceptance documentation, including contracts, acceptance certificates, invoices, and customs declarations, is forwarded to the accounting department.

Using Adsoft software, accountants can easily select the transaction type on the input screen and enter essential details such as document type, description, debit and credit accounts, original currency, exchange rate, and total amount This process enables accountants to accurately determine the journal entry to be recorded in the accounting software.

According to the contract terms, an advance payment of 20% of the total contract value, amounting to USD 23,000, was made, followed by an 80% payment of USD 92,000 via an irrevocable and confirmed letter of credit at sight before shipment The payments were converted to VND using the bank exchange rates at the time, which were USD/VND = 23,230 for the initial 20% payment and USD/VND = 23,293.48 for the subsequent 80% payment Consequently, the total purchase price in VND was calculated accordingly, and a journal entry was made to record the purchase price of fixed assets.

CR: Account 331 (detailed by supplier) – Trade payables: 2,677,290,000

- According to Clause 3, Article 21 of Decree No 08/2015 / ND-CP and Article 35 of Circular 38/2015 / TT-BTC dated March 25, 2015, the tax calculation

The exchange rate used for the Customs declaration is determined at the time the declaration is opened For instance, in this case, the exchange rate for the declaration of imported goods was set at USD/VND = 23,140.

Assessment of the current accounting procedures for Tangible Fixed Assets at Minh

The effective coordination among the company's departments has enabled swift task fulfillment, while clearly defined roles for each accountant ensure duty segregation and promote fairness and transparency in reward and punishment decisions.

The company's accounting voucher system is straightforward and aligns with the accounting regime, effectively supporting internal management needs Records and documents are stored systematically, ensuring no loss occurs while maintaining the confidentiality of sensitive information Invalid documents are disposed of strictly following established procedures Additionally, the company employs Bkav antivirus software to safeguard accounting data against potential viruses.

Minh Hoang, a medium-sized business, has opted for an accounting system to manage its relatively simple and repetitive operational transactions effectively.

67 accordance with Circular No 133/2016/TT-BTC and flexibly combined with the classification of TFA according to economic use purposes to simplify and facilitate the recording process.

Timely issuance of VAT declarations and financial statements is essential for compliance with District Tax Department regulations and government agencies It is crucial to promptly adjust any errors or events occurring after the balance sheet date to ensure that the figures presented are accurate, relevant, and faithfully reflect the company's business operations.

The bookkeeping of fixed asset (FA) procedures within an enterprise adheres to established accounting standards and policies This systematic approach ensures that accounting records are maintained in a consistent manner, utilizing standardized forms and documents, which facilitates efficient data retrieval, verification, balance checking, and document review.

The company's approach to accounting for the depreciation of tangible fixed assets (TFA) lacks flexibility, as it currently employs a straight-line depreciation method for all assets While this method is straightforward and easy to calculate, it can hinder the recovery of capital, particularly for high-value TFAs or those with significant intangible depreciation rates that may quickly become obsolete This inflexible depreciation strategy can impede effective investment in asset innovation, ultimately diminishing the enterprise's competitiveness in the market.

As the company expands its operations, the chief accountant faces the dual responsibility of managing both financial and management accounting tasks This increased workload can result in potential errors and inaccuracies in journal entries, highlighting the risks associated with such demands on the chief accountant's role.

In this consideration, the performance of financial accounting of TFA as well as management accounting of TFA will not achieve optimal efficiency.

- Thirdly, current Adsoft software does not meet several requirements of the company in recording accounting transaction and management activities The

68 software does not have functions such as: automatically carry out depreciation, accumulate incurred costs to calculate the price for each project…

Despite the correction of the principal error, the identified mistake highlights the ineffectiveness of the company's financial data review procedures Specifically, inaccuracies in the recording of fixed assets (FA) have resulted in significant errors within the Financial Statements.

- Fifthly, since the company‟s business characteristic is leasing equipment according to projects, the company‟s FA will be distributed in a variety of locations

At the end of the year, project managers conduct the inventory of fixed assets (FA) independently, recording it on the "Card of Inventory of FA" before submitting it to the accounting department at headquarters for tracking and procedural compliance While this method can reduce costs for businesses, it also poses a risk of inaccuracies in the fixed asset inventory information.

FA, the risk of embezzlement is lower than for inventory but there is still a risk

Chapter 2 has shown that as a long-time operating company in the field of leasing operating TFA, Minh Hoang Trading and Transportation LTD has built a relatively complete accounting process and complies with State‟s accounting regulations Chapter 2 has also detailed the accounting process of TFA, arising transactions related to TFA and the accounting treatments The accounting process of Minh Hoang has certain advantages since it has been gradually improved over a long time of operation, yet there are limitations that need to be overcome Solutions proposed to the company in favor of further improve the accounting procedure for TFA and recommendations to complete the accounting standards will be clarified in Chapter 3

COMPLETING THE ACCOUNTING PROCEDURES FOR TANGIBLE

Development orientation of Minh Hoang Trading and Transportation Limited

Minh Hoang Trading and Transportation LTD is a company specialized in leasing particular FA which are oversized and overweight equipments In 2019, the company basically has achieved these following targets:

The company has secured a contract with the Vestas project, significantly boosting its revenue and profit However, Vietnam's rapid growth and industrialization pose challenges, leading to adverse effects on the environment and natural resources.

- Profit after tax is 11% higher than the target set in 2018

- Administration activities are relatively effective, representative offices coordinate well with the headquarter

Vietnam is rapidly emerging as Southeast Asia's most attractive market for construction machinery and equipment, driven by a fast-paced construction sector In light of the current economic landscape and the promising growth rate of the construction industry, the company has outlined its development strategies for 2020.

* In terms of investment and technical:

The company has decided not to invest in additional equipment in the near future, as the current equipment already meets customer requirements Instead, it will leverage its existing facilities to continue delivering services for the Vestas project in Nha Trang.

- Simultaneously, continuing to survey and research the market in Southern of Vietnam and Laos to search for new projects, specially are “green” energy projects

- Considering additional investment in the field of real estate

- The company set target that sales in 2020 reachs 200 billion VND, profit after tax reachs VND 20,000,000,000

- The profit targets ensure the principle of keeping the market stables, the profit reaches at least 20% of the charter capital

- The income of employees increases according to the inflation rate of the currency over the years about 3-3.5% per year (according to the inflation rate forecast in 2020)

- Adjustment to increase charter capital suitably, until 2022, the charter capital increase to VND 100,000,000,000.

The need to complete accounting procedures for Tangible Fixed Assets at Minh

In today's globally integrated economy, effective accounting, particularly fixed asset (FA) accounting, is crucial for businesses to thrive amidst competition and volatility It enables companies to assess their debt repayment capabilities, secure funding, and evaluate business performance By providing valuable insights, accounting aids managers in making informed economic decisions, while investors rely on this information to guide their investment choices Ultimately, accounting serves as a vital tool for enterprises seeking to navigate the complexities of the market.

The accounting and management of FA plays an important role in the production and business process of Minh Hoang Trading and Transportation LTD

The company's fixed asset (FA) accounting has seen continuous improvements to better align with management needs Despite these advancements, certain limitations remain that require further enhancement Addressing these gaps will enable the company to manage all types of fixed assets more effectively and efficiently.

Solutions to complete accounting procedures for Tangible Fixed Assets at Minh

3.3.1 Solutions to deal with existing disadvantages

To optimize capital recovery and enhance business operations, the company should implement accelerated depreciation for certain types of fixed assets (FA) By assessing the existing FA and their specific characteristics, the company can categorize and apply depreciation methods tailored to each group, facilitating reinvestment in new FA to better support production activities.

+ Buildings and structures: straight-line depreciation method

+ Management equipment and tools: accelerated depreciation

Accelerated depreciation on fixed assets enables businesses to recover capital more quickly, facilitating the timely renewal of machinery, equipment, and technology while minimizing losses from wear and tear.

In 2019, the company decided to invest in a new crane costing VND 4,500,000,000 to enhance construction efficiency for a new project Given the project's demands, the crane needs to operate at a capacity exceeding its normal limits To align the depreciation with the machine's usage, the company is considering accelerated depreciation While the straight-line depreciation rate for this crane is 10% per year, the accelerated rate can be set at a maximum of 20%, effectively doubling the straight-line rate.

Year Value to be depreciated

To enhance efficiency, the company should establish a dedicated division for management accounting, focusing on key tasks such as selecting appropriate costing methods, planning and budgeting, and performance measurement As a medium-sized business, Minh Hoang should implement a managerial accounting model that integrates seamlessly with financial accounting to optimize human resources, streamline information input, and reduce expenses This organizational structure will facilitate better processing of both financial and management information, particularly detailed financial accounting data.

The company should produce quarterly management accounting reports that include a comprehensive cost analysis of fixed assets (FA), an evaluation of their utilization, an assessment of fuel expenses, and a budget forecast for new investments or repairs related to FA For instance, the budget for FA usage costs can be structured using a specific template to ensure clarity and efficiency in financial planning.

No Description Budget for Quarter Actual in Quarter Under/

Table 3.2 Budget for costs of using FA

To enhance data logging and administration, the company should consider upgrading its accounting software or transitioning to a more advanced solution, particularly as it aims to expand its business operations One recommended option for replacement is MISA SME, which offers improved features tailored to meet the company's evolving needs.

In 2020, BRAVO emerged as a highly specialized software solution, offering advanced features like multi-currency accounting, drilldown data analysis, and comprehensive human resources management While MISA remains a popular choice for small and medium-sized businesses due to its affordability and ease of use, BRAVO stands out with its exceptional capabilities tailored for more complex business needs.

74 management … Taking into account that Minh Hoang frequently has import transactions of equipment and needs to manage unique with high-valued FA, BRAVO might be a practical option

- In order to avoid errors of recording FA, it is necessary to have a reasonable documents reconciliation process: any arising or increasing invoices of

FA need to be reconciled in regard of value and description, monthly review the bookkeeping process, timely detect and handle if any differences arise

Ensure accurate recording of essential property details in the book and FA card, including the property's name, type, usage, cost, code, location, purchase or liquidation date, supplier or manufacturer, value changes or amortization, and accumulated depreciation Periodically compare figures in the detail books with the ledger For indistinguishable properties, in addition to proper record-keeping, label these assets for easy identification.

- Last but not least, the company should re-establish the inventory of FA procedures Ideally, the FA inventory should follow these steps:

+ Step 1: The leader (Director) of the enterprise announces the Decision on inventory of FA.

To establish the FA Inventory Council within the enterprise, the Director or company head will serve as the Chairman, while personnel managers from departments that directly utilize the inventory will be included as members.

FA, Personnel manager of the company‟s asset management department, Chief accountant; FA accounting…

+ Step 3: At the end of the fiscal year or when there is demand, the FA inventory council shall conduct the inventory of FA.

In Step 4, gather and process data to create the "Minutes of FA Inventory," highlighting discrepancies in the quantity and value of fixed assets (FA) between recorded figures and actual counts This document should summarize FA requiring repairs, maintenance, or internal transfers, as well as assets designated for liquidation due to damage, excessive repair costs, high fuel or energy consumption, inefficiency, or obsolescence.

+ Step 5: The FA Inventory Council makes comments and assessments.

The article evaluates the management and utilization of fixed assets (FA) within the enterprise, identifying discrepancies between book value and actual inventory value It discusses the underlying causes of these differences and proposes targeted solutions to address them Additionally, the article outlines strategic plans for the repair, maintenance, and upgrading of fixed assets to enhance operational efficiency and ensure accurate financial reporting.

+ Step 6: Proposing solutions and recommendations.

To minimize inventory expenses, particularly related to business trips, the company can reduce the number of members in the FA Inventory Council However, it is essential to ensure that each project council includes at least one member from the Board of Directors or the Chief Accountant.

3.3.2 Solutions to improve the efficiency of using and management Tangible Fixed Assets

To effectively implement the TFA, the head of the asset management division must designate specific employees to take responsibility for asset management Additionally, any internal asset transfers necessitate proper documentation to record the transfer, along with approval from the designated responsible individual.

Regular and scientific reviews of fuel consumption norms are essential for each TFA used in projects, ensuring they align with specific requirements and characteristics By consistently determining and updating material consumption, companies can effectively assess TFA performance, manage comprehensive consumption norms, and control costs Additionally, implementing fuel consumption norms should include a suitable wage mechanism to incentivize employees to enhance savings, foster technical innovations, and improve TFA management efficiency.

To effectively assess the technical status and efficiency of fixed assets (FA) within the enterprise, it is essential for the company to evaluate each tangible fixed asset (TFA) to determine its condition, age, and necessity for repair or replacement Accountants should establish a comprehensive system of indicators that accurately reflects the technical status and utilization of these assets This data collection will provide valuable insights into the overall performance and maintenance needs of the company's fixed assets.

Recommendations to improve current accounting standards – an approach to

Minh Hoang specializes in leasing operating fixed assets, with a focus on VAS 03 and VAS 06, the Vietnamese standards currently in use This thesis compares these standards to IAS 16 and IAS 17, which are widely adopted national standards utilized in over 100 countries and territories around the globe.

3.4.1 IAS 16- Property, Plant and Equipment (PPE) and VAS 03- Tangible Fixed Assets

Overall, the differences between IAS 16 and VAS 03 that should be highlighted are in terms of: Measurement after initial recognition and Impairment

IAS 16 allows 2 accounting models: cost model and revaluation model The selected model should be applied to an entire class of PPE

- Cost model: The asset is carried at cost less AD and impairment

- Revaluation model: The asset is carried at a revalued amount, being its FV at the date of revaluation less subsequent depreciation and impairment, provided that FV can be measured reliably

VAS 3 only allows cost model The assets are determined according to their historical costs,

Impairment PPE is subject to impairment assessment To determine whether an item of PPE is impaired, IAS

36 – Impairment of Assets is applied IAS 36 explains how an

Impairment / write down of PPE is not allowed under VAS 3 unless there is a re-appraisal according to the State‟s regulation

79 entity reviews the carrying amount of its assets, determines the recoverable amount of an asset, and when it recognized, or reverses the recognition of, an impairment loss

Table 3.3 Comparison between IAS 16 and VAS 03

Based on the comparison in the above table, there are following points that should be taken into consideration.

To enhance the relevance of financial reporting, VAS 03 should be revised to permit the revaluation model for measuring fixed assets after initial recognition While the cost model offers simplicity and reliability in accounting information, it primarily reflects historical values, which may not adequately address market fluctuations and inflation Consequently, relying solely on historical data can hinder economic decision-making in a dynamic market environment.

To enhance the relevance and applicability of the Accounting Law and standards in Vietnam, it is crucial to adjust and supplement existing regulations This includes allowing businesses the option to choose between the cost model and the revaluation model for fixed assets (FA) as outlined in VAS 03 However, to implement these models effectively, assets must be recorded at fair value (FV), making the determination of FV essential Currently, Vietnam lacks specific guidelines for applying FV, establishing a basis for its determination, and the methods for accounting by FV, highlighting a significant gap in the regulatory framework.

To ensure reliable fair value (FV) recording, a conducive business environment is essential However, Vietnam's market economy is still transitioning, leading to an absence of a fully operational market for all assets, which undermines the reliability of FV assessments for certain assets Establishing a complete commodity market that functions under a transparent and comprehensive market mechanism is crucial for improving FV determination.

+ Due to the fact that the infrastructure of enterprises is still limited, accountants‟ qualifications are unequal; the application of FV will also cause many

To address the 80 inadequacies, it is crucial to enhance communication and training through seminars and programs that promote awareness and consensus on the use of Fair Value (FV) in asset recognition Furthermore, companies must establish a qualified team capable of accurately appraising assets to reliably determine their Fair Value.

IAS 36 outlines the accounting standard for the impairment of assets, a crucial aspect that VAS does not address For instance, Vinashin's purchase of an old passenger ship from Italy, recorded at a book value of 80 million EU, could only be sold for 10 million EU after a short operational period This failure to recognize an impairment loss can significantly distort the financial position presented in the financial statements, ultimately impacting user decisions Similarly, for companies like Minh Hoang with a substantial proportion of fixed assets, acknowledging impairment losses is vital for maintaining transparency in financial reporting.

To align Vietnam's accounting standards with international practices, it is crucial to research and develop standards that reflect the unique characteristics of the Vietnamese economy Enhancing the transparency of accounting information will transform the accounting landscape and business culture in Vietnam Improved transparency will facilitate the application of accounting estimates in Vietnam Accounting Standards (VAS) and increase the usefulness of financial statements for users For instance, a transparent property trading market is essential for using fair value (FV) as a measure of asset valuation It is also recommended to invest in the analysis and development teams and allocate funding for the training of accountants to support the drafting of these standards.

As of now, Vietnam Accounting Standards (VAS) lacks a counterpart to IFRS 16 According to the initial draft of the IFRS roadmap proposal issued on March 23, 2019, by the Ministry of Finance, Vietnam is currently in Phase 1 of IFRS implementation, which is the preparation phase This phase, spanning from 2019 to 2021, involves the Ministry of Finance establishing the essential conditions for the scheme's implementation, aimed at providing support for enterprises.

Businesses in the leasing sector, such as Minh Hoang, must prepare for the changes and impacts brought about by IFRS 16 This includes adapting to new IFRS translations into Vietnamese, enhancing human resource training, and developing comprehensive IFRS application guidelines.

IFRS 16 mainly affects the lessee and gives only one model instead of two models (finance lease and operating lease) as IAS 17 Lessor accounting does not change and lessors continue to reflect the underlying asset subject to the lease arrangement on the balance sheet for leases classified as operating For financing arrangements or sales, the balance sheet reflects a lease receivable and the lessor‟s residual interest, if any Although the accounting treatments basically remain unchanged to lessors, there are still several worth-noticing points:

- Requirement to present financial statement for lessors of operating lease: + Rental income, interpret separately the income related to varied rental payments independent with index

+ Maturity analysis of rent payments for a minimum of each first five years plus the total for the remaining years

+ Requirement of disclosure under IAS 36, IAS 38, IAS 40 and IAS 41 for operating lease assets

+ Requirement of disclosure under IAS 16 for properties, factories and equipment are subject to operating leases

- Qualitative notes for all leases: the nature of the lease activity to the lessor, managing risks related to rights held by the lessor

- According to Pricewaterhouse Cooper, the equipment lessor industry is considered to be affected in their business model because of changes in lessees‟ behaviours

Lessees are increasingly seeking shorter lease terms and more flexible payment structures, which poses risks for lessors and affects lease economics This shift in behavior may hinder equipment lessors from imposing higher lease rates amid current economic conditions, potentially impacting their performance and leading to greater cash flow volatility and risk.

82 change in lesses‟ behaviours may impact lessors‟ own ability to obtain favorable financing for their investments

The recent changes in leasing standards present new service opportunities for lessors, potentially increasing their workload while driving industry transformation These dynamics can lead to the development of innovative services and products, particularly as the market shifts towards a greater emphasis on service offerings Consequently, lessors may need to adapt their traditional business models to align with these evolving market demands.

Chapter 3 has drawn out solutions to deal with the existing limitations of the company‟s TFA accounting procedure In order for the company to operate effectively, it is critical to take advantage of FA in the most optimal way As a result, Chapter 3 also proposed solutions to improve the efficiency of using and management TFA Following the growing trend of harmonization and convergence in accounting practices, Vietnam is in need of minimizing the gap between VAS and IFRS This chapter has additionally indicated the differences between currently applied VAS relating to TFA and Leasing versus the equivalent IFRS Accordingly, appropriate recommendations are suggested to update and synchronize VAS standards with the international standards

As the company aims to expand its business areas, it is essential to align with Vietnam's reform trends to ensure adequate organizational resources and effective management methods To navigate the harmonization and convergence trends in Vietnam, the company must prepare for changes in accounting regimes and regulations.

A detailed review of the company's FA accounting procedures reveals the current status, highlighting the strengths of TFA's accounting practices that should be preserved while addressing the company's limitations Additionally, it is crucial to update and align accounting standards with national regulations to ensure compliance and improvement.

Over all, during the internship, I was able to study about the actual procedures carried out at the company and apply the knowledge taught at school into practice

1 Binh P.D, (2014), “ Tangible fixed assets accounting system for enterprise in Vietnam”

2 Daiva T et al., (2019), “Methodolody of complex analysis of tangible fixed assets”

3 Dastgir M G, (2014), “The effect of earnings quality on tangible fixed assets and long-term investments”, p.75-97

4 Finance and Accounting Department of Minh Hoang Trading and Transportation LTD, Documents and Financial statements from 2017-2019

5 IASB, International Financial Reporting Standards

6 Khanh B.C, “Ung dung cac mo hinh ke toan quan tri tai cac doanh nghiep Vietnam”, gec.edu.vn

7 Linh N.T.A, (2019), “Cac nhan to anh huong den viec ap dung chuan muc bao cao tai chinh quoc te cho doanh nghiep nho va vua”

8 Ministry of Finance , (2016), Circular No 133/2016/TT-BTC - Accounting for small and medium enterprises

9 Ministry of Finance, (2013), Circular No 45/2013/TT-BTC - Guilding regulation on manaement, use and depreciation of FA

10 Ministry of Finance, Vietnamese Accounting Standards

11 Nguyen T D T, (2019), “Research on Management Accounting of Fixed Assets at Vinacomin, Vietnam”

12 Onaolapo A A et al., (2014), “The Analysis of the impact of Accounting Records Keeping on the Performance of the Small Scale Enterprises”

13 PwC, (2016), “The leases standard is changing Are you ready?”, p.9, www.pwc.com

14 PwC, (2018), “A comparison of International Financial Reporting Standards (IFRS) and Vietnamese GAAP”, p.61-64, www.pwc.com

Address: 308 Le Thanh Tong Street, May

Chai Ward, Ngo Quyen District, HaiPhong

(According to Circular No.133/2016/TT-BTC dated August 26 th 2016 of the Ministry of Finance )

MINUTES OF HANDOVER OF FIXED ASETS

Debit: Acc 2111 Credit: Acc 3331/3339 According to Decision no: 18/2019 of Director of Minh Hoang Trading & Transportation LTD on purchasing and handing over the fixed asset: 02 Wind Blade Semi-trailer

- Mr: Pham Quoc Minh: Representatives of hander

- Mr: Tran Xuan Quang - Director: Representatives of recipient

- Mr: Nguyen Xuan Hoang – Engineering manager

Fixed asset handover location: Workshop of Minh Hoang Trading & Transportation LTD Affirm the handover of FA as follows:

No Description Unit Quantity Value

Document 2.1 Minutes of hand over of FA

Address: 308 Le Thanh Tong Street, May

Chai Ward, Ngo Quyen District, HaiPhong

(According to Circular No.133/2016/TT-BTC dated August 26 th 2016 of the Ministry of

FIXED ASSETS BOOK AT USING DEPARTMENT

Year: 2019 Using department: Engineering department

Voucher Name and description UOM Quantity Price Value

- There are pages in this book, numbered from page 01 to page…

Document 2.2 FA book at using department

Address: 308 Le Thanh Tong Street, May Chai

Ward, Ngo Quyen District, HaiPhong

(According to Circular No.133/2016/TT-BTC dated August 26 th 2016 of the Ministry of Finance)

According to FA handover report No 02 dated 15/10/2019

FA name, Notation code, FA configuration (rank): Wind Blade Semi-trailer, RM18 Made in: China MFG year: 2019

Using department: Transportation service division of Engineering department

Capacity, Area, Design: 60 tons (21,5mx56m)

Using suspension date:…month…year

FA Historical cost FA Depreciation value

Date Description Cost Year Depr Value AD

FA decrease voucher no: …date… month… year…

Address: 308 Le Thanh Tong Street, May

Chai Ward, Ngo Quyen District, HaiPhong

(According to Circular No.133/2016/TT-BTC dated August

26 th 2016 of the Ministry of Finance )

Year: 2019 Specification: Means of conveyance

Made in Using date FA No Original cost

56m Wind Blade Semi- trailer China 01/11/2019 15R14508 1,367,917,100 12.5% 28,498,273

56m Wind Blade Semi- trailer China 01/11/2019 15R14585 1,367,917,100 12.5% 28,498,273

- There are … pages in this book, numbered from page 01 to page…

Cash Transfer  Currency VND  USD  Other 

According to Circular No.184/2015/TT- BTC dated 17/11/2015 of Ministry of Finance

Tax Payment Applicant: MINH HOANG TRADING & TRANSPORTATION LTD

Address: 308 Le Thanh Tong Street, May Chai Ward District: Ngo Quyen City: HaiPhong Tax Payment Substitute: Tax code:

We request Dien Bien Phu Transaction Office debit our Account No… or collect our cash

To deposit to National budget or Provisional Account  of the Colleting Authority/ at State Treasury (ST) : Hong Bang- HaiPhong

Opened Encashment Order at Bank (EOB): VIB Bank

Name of Collecting Authority: Customs Sub-Department of Haiphong Port border gate Zone I-

Import and export goods procedures team

No Section forTax Payment Applicant Section for EOB/ ST

No of ref Date of declaration

VAT on imported goods (excluding VAT on imported goods across the land border)

Total in words: Two hundred and sixty six million one hundred and ten thousand dong

For State Treasury Use Only:

Date 4 month 9 year 2019 Date 4 month 9 year 2019

Director (Signature, full name, seal)

Budget Holder (Signature, full name)

Chief Accountant (Signature, full name)

Document 2.6 Payment to Tax Authorities

SOCIALIST REPUBLIC OF VIETNAM Independence – Freedom – Happiness

DECISION Rev LIQUIDATION OF FIXED ASSETS

DIRECTOR OF MINH HOANG TRADING & TRANSPORTATION LTD