Overview of Thai Hoa Production and Trading Company Limited

PART II

PRACTICE OF MATERIAL ACCOUNTING AT THAI HOA PRODUCTION AND TRADING COMPANY LIMITED.

2.1 Overview of Thai Hoa Production and Trading Company Limited

2.1.1 History of formation and development

Thai Hoa Production and Trading Company Limited was established and put into operation under Decision No. 2335 QD-TL dated March 4, 1996 issued by Hanoi People's Committee with business license No. 048176 dated March 12, 1996 issued by Hanoi Department of Planning and Investment.

Company name: Thai Hoa Production and Trading Co., Ltd. English name: Thai Hoa production and trading copration.

Head office: D21- Phuong Mai, Dong Da District, Hanoi City. Phone: (84-4)5.740.348

Fax: (84-4)8.520.507

Account number: 01001232257 Tax code: 0100367361

Email: thai-hoa@hn.vnn.vn Website: www.thaihoacoffee.com.vn

Functions and business tasks of the unit:

+ Processing coffee beans into coffee beans and then exporting.

+ Processing green coffee, ground coffee into instant coffee, filter coffee, milk coffee.

+ Domestic and international travel and investment consulting services, project consulting to group B.

+ Consulting on equipment installation for civil, industrial, irrigation, postal, telecommunication projects...

+ Forestry processing.

+ Rubber planting.

+ Establish investment projects in agriculture, agricultural and forestry processing...

+ Design of electrical systems for civil and industrial works, design of power lines and transformer stations up to 35KV.

The main activities of the Company are production, processing and export of Arabica coffee, Robusta coffee and instant coffee. With initial charter capital of VND 9,950,000,000.

Although it has only been in operation for more than 10 years, Thai Hoa Company has achieved some remarkable achievements. Thanks to the right development strategy, focusing on the coffee export market, up to now the Company has not only grown in scale but also in reputation. The Company's Arabica coffee products account for more than 80% of Vietnam's Arabica coffee export output, contributing significantly to building the Vietnamese Arabica coffee brand in the world market - a type of coffee that 10 years ago was still very unfamiliar and discriminated against by consumers. The Company's products are partly consumed in Vietnam but are mainly exported to countries such as the US, EU, Japan, Singapore, etc.

The great contributions in building the reputation of Arabica coffee have been recognized by the Ministry of Trade and the Hanoi People's Committee through the award of certificates of merit for continuous export achievements for 5 years: 2001, 2002, 2003, 2004, 2005 and the ISO 9001-2000 certificate in 2003.

Up to now, the Company has opened branches operating in all three regions of the country, with a main office located at D21-Phuong Mai, eight subsidiaries, four branches and three factories present in famous coffee regions of Vietnam, namely:

- Thai Hoa Company - Nghe An.

- Thai Hoa Company - Quang Tri.

- Thai Hoa Company - Lam Dong.

- Thai Hoa Company - Thua Thien - Hue.

- Thai Hoa - Hoa Binh Company.

- Thai Hoa Lao - Vietnam Company.

- An Giang Coffee Joint Stock Company.

- Khe Sanh Construction Company.

- Ho Chi Minh City Branch.

- Son La Branch.

- Dien Bien Branch.

- Giap Bat Coffee Processing Factory.

- Lien Ninh Coffee Processing Factory.

- Khe Sanh Coffee Processing Factory.

Below are some indicators showing the Company's production and business performance over the past few years:

+ Some indicators on capital sources:

STT	Target	2006	2007
1	Net revenue	190.210.724.235	170.646.358.725
2	Profit before corporate income tax	8,825,457,494	8,314,753,483
3	Submit budget	174,642,235	582.170.078
4	Profit after corporate income tax	8,650,815,259	7,732,583,405
5	Equity capital	60,716,243,683	62,593,759,291

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+ Labor

The number of staff and workers, with current training level as of 2008, is 1,370 people.

TT	Level	Unit	Quantity
1	University, college	People	40
2	Intermediate	People	55
3	Technical worker	People	60
4	Skilled workers	People	100
5	General labor, short-term contract	People	1115
	Add		1370

(Source: Finance and Accounting Department)

2.1.2 Characteristics of production organization and management.

Thai Hoa Production and Trading Company Limited includes the head office located in Hanoi and subsidiaries located in provinces nationwide and three processing factories. Of which, eight subsidiaries and three branches are affiliated units with independent accounting, playing the role of purchasing as well as processing right in the raw material area. Three coffee processing factories are affiliated units with dependent accounting, playing the role of producing coffee products to serve domestic consumption and export needs.

Diagram 11:

Manager

Deputy General Director of Operations

Deputy General Director of Business

Room

materials

accountant

terrible

business

organization

onion

Technically

technique

Import and Export

main

Home	Home	Home
machine	machine	machine
Lien Ninh	Giap Bat	Khe Sanh

- Company Board of Directors

The Company's Board of Directors consists of a General Director and two Deputy General Directors.

- General Director: responsible for directing and operating all production and business activities of the Company; Responsible to the Prime Minister and State laws for the production and business activities of the Company.

- Deputy General Director in charge of business: assists the General Director in managing business operations. The Deputy General Director of Business is responsible for finding customers, signing sales and business contracts as well as supplying raw materials. At the same time, he is responsible for managing and reporting to the General Director on the business situation of the Company.

- Deputy General Director in charge of operations: assists the General Director in managing the Company's administrative tasks. Plans operations, assigns tasks among departments, evaluates and manages the performance of employees in the Company.

- Functional departments

- Accounting department:

+ Advise the General Director on economic accounting according to the Company's organization and operation charter.

+ Organize and manage financial resources and synthesize revenue and expenditure, analyze economic and financial activities in production and business.

+ Build a business accounting basis for prices, import-export exchange rates and production norms.

- Technical department:

Check the quality of raw materials and product quality indicators during the production process. Ensure the stability of the set technical indicators, develop new products to meet market needs.

- Material room:

+ Purchase equipment and supplies for the Company.

+ Ensure quantity and quality of materials.

+ Ensure and provide sufficient supply of goods to serve the Company's production and business.

- Subsidiaries, branches and factories:

+ Directly produce and process green coffee for export to meet the Company's requirements.

+ Implement the coffee cycle well to meet export standards according to regulations.

+ Production and processing of finished coffee products (beverages).

+ Invest in reasonable equipment, machinery and factories, invest in science and technology to ensure stable production quality and increasing quantity.

+ Search for customers, expand domestic market and export to world market.

2.1.3 Actual organization of accounting work.

2.1.3.1 Organization of accounting apparatus.

The accounting department of Thai Hoa Production and Trading Company Limited is organized into an Accounting Department headed by the Chief Accountant, who is also the Chief Accountant. The Accounting Department has the function of managing all financial accounting activities of the Company. At the same time, the Accounting Department also advises the Board of Directors on financial plans, financial accounting policies and strategies. The Accounting Department organizes and performs accounting according to the current financial regime and the characteristics of the Company's business activities.

The Company's accounting system is divided into separate sections performed by accountants. Each accountant has his/her own functions, duties and authority regarding the volume of accounting work assigned.

Below is the organizational chart of the accounting department at Thai Hoa Company.

General Accounting

Diagram 12:

Chief Accountant

Plan

The

Plan

Head

maths

core

maths

Fund

echo

bar

Object

planner

labour

talent

money

row

maths

private

product

maths

unit

in debt

product

try

wage

product

direct

determine

belong

2.1.3.2 Practical application of accounting regime at Thai Hoa Company.

- Application voucher system

The accounting voucher system applied at Thai Hoa Company is in accordance with the content, method of preparing and signing vouchers as prescribed by the Law on Accounting and Decree No. 129/2004/ND-CP dated May 31, 2004 of the Government.

- User account system

Currently, Thai Hoa Company is using the enterprise accounting system issued under Decision No. 15/2006/QD-BTC dated March 20, 2006 of the Minister of Finance.

- Accounting book form:

Currently, Thai Hoa Company is applying the General Journal accounting form.

Thai Hoa Company based on the standards and conditions of accounting software prescribed by the Ministry of Finance in Circular No. 103/2005/TT-BTC dated November 24, 2005 and selected ACSOFT accounting software suitable for the management requirements and conditions of the Company. Thanks to the use of accounting software in accounting, the work of bookkeeping is carried out more simply and conveniently.

- The accounting policies of the enterprise

Thai Hoa Company performs accounting work according to Vietnamese accounting standards. In addition, the Company also uses the following accounting policies:

- The Company's fiscal year coincides with the calendar year, starting from January 1 of each year and ending on December 31 of that year.

- The accounting period is one month, at the end of the month, prepare a final settlement report and send the report according to regulations.

- The inventory accounting method is applied according to the regular declaration method, using the weighted average method to determine the value of goods exported from the warehouse.

- Method of calculating value added tax: The company registers and pays VAT according to the deduction method.

- The regime of setting aside and allocating depreciation of fixed assets is in accordance with Decision 206/2003/QL-BTC issued on December 22, 2003 by the Minister of Finance. The method of calculating depreciation is straight-line, the depreciation period is according to the time frame prescribed by the State for each type of fixed asset.

2.2 Current status of material accounting at Thai Hoa Production and Trading Company Limited.

2.2.1 Materials management organization

* Characteristics of raw materials used at Thai Hoa Company

The raw materials used at the Company are coffee berries and coffee beans along with other materials. These materials are mainly purchased from outside.

Coffee is a typical agricultural product with high export value in Vietnam, but this is a commodity with very large price fluctuations, which has a significant impact, directly and indirectly, on production and business enterprises. This characteristic has influenced the organization, management and accounting of raw materials at Thai Hoa Production and Trading Company Limited.

Coffee is usually harvested in October, November and December of the lunar calendar. The seasonality of coffee causes its price to fluctuate, thus affecting the purchasing and storage of raw materials for the Company's production process.

* Classification of raw materials at Thai Hoa Company Limited

Classifying raw materials for effective preservation, storage and use is a necessary task for manufacturing enterprises. Therefore, in the management of raw materials, the Company pays great attention to classifying raw materials.

Based on the economic content and role of raw materials at Thai Hoa Company Limited, they are divided into the following types:

- Main materials:

Coffee fruit, coffee beans and green coffee. These are the main raw materials that account for a large proportion of raw material costs and are the main raw materials that create the product entity.

For ground coffee, black instant coffee and instant coffee with sugar, the main ingredients are green coffee beans, milk and sugar.

- Auxiliary materials:

Are coffee bags, additives….

- Fuel:

Including gasoline, oil, grease, coal, electricity, etc.

- Replacement parts:

Bearings, belts, filters, screws,…

- Recovered scrap:

Pineapple sacks, hemp sacks, nylon,

Classification of raw materials is managed on computers, organized by warehouse: Lien Ninh warehouse, Giap Bat warehouse.

2.2.2 Detailed accounting of raw materials at Thai Hoa Company.

Thai Hoa Company is currently applying the parallel card method to account for raw materials in detail to facilitate the work of checking, comparing as well as accurately and promptly monitoring the fluctuations and inventory of each type of raw material. The detailed accounting of raw materials using the parallel card method is carried out simultaneously in two places: at the warehouse and at the accounting department.

* At warehouse:

The warehouse keeper monitors the import, export and inventory status according to quantity indicators, based on the import and export of raw materials. For main raw materials, each type has its own warehouse card, while for auxiliary raw materials, they are monitored on the same warehouse card, each item is written on a separate warehouse card line.

When purchasing raw materials for storage, based on the source of goods, the warehouse keeper shall make a "Warehouse Receipt" (Form 01-VT) or "Minutes of inspection of materials, tools, products, goods" (Form 03-VT) issued under Decision 15/2006/QD-BTC dated March 20, 2006 of the Minister of Finance. Before storing, it must be approved by the Factory Director. The technical department will take samples and determine the quality ratios (for raw materials such as rice coffee, green coffee beans, etc.), check the type and quality of goods according to the criteria sent by the Company. The accountant shall make a warehouse receipt for all types of raw materials purchased domestically, and make a "Minutes of inspection of materials" for imported raw materials. The warehouse keeper proceeds to import goods and submits the weight card to the factory accountant to record the actual imported quantity on the Warehouse Receipt (The warehouse keeper only records the actual quantity imported, not the quantity according to the voucher). The warehouse receipt is made into 3 copies with full signatures of the relevant people, one copy is kept in the warehouse keeper's book, one copy is given to the delivery person as the basis for payment, and one copy is sent to the accountant. The warehouse keeper bases on the data provided by the Technical Department and the Warehouse Receipts to record the "Warehouse Card". At the end of the month, the warehouse keeper submits the Warehouse Receipt (copy 2), Warehouse Delivery Receipt and documents related to import and export of goods to the Accounting Department.

Example: See chart

Table 1:

THAI HOA PRODUCTION AND TRADING COMPANY LIMITED

WEIGHT CARD

Driver's name: Pham Ngoc Nghi

Vehicle number: 29K-4438

Product type: Paddy coffee (Son La branch)

Vehicle weight with goods: 40,475 Tons Date/Time: 08:44:39 January 19, 2008 Vehicle weight: 13,82 Tons Date/Time: 17:19:53 January 19, 2008 Cargo weight: 16,655 Tons

Weigher

(Signature, full name)

Company Accounting

(Signature, full name)

Drive

(Signature, full name)

Storekeeper

(Signature, full name)

Protect

(Signature, full name)

Table 2:

Thai Hoa Production - Trading Company Limited Model No.: 01 - VT

Department ( Issued under Decision No. 15/2006/QD-BTC dated March 20, 2006 of the Minister of Finance) WAREHOUSE RECEIPT NOTE

February 26, 2008 Debit account: 1521

Number: NKT2/002 Debit account: 1331 Credit account: 331

- Delivery person's name: Pham Ngoc Nghi

According to invoice number 005768 dated January 19, 2008 of Son La Branch Imported at warehouse: Lien Ninh

STT	Name, brand, quality specifications of materials	Code	Unit of measure	Quantity		Unit price	Total amount
STT	Name, brand, quality specifications of materials	Code	Unit of measure	According to evidence from	Actual import	Unit price	Total amount
A	B	C	D	1	2	3	4
1	Rice coffee Arabica	12	Ton	16,655	16,655	28,000,000	46,634,000

	Add						46,634,000

Amount in words: Forty six million, six hundred thirty-four thousand dong./.

Voter

(Signature, full name)

Delivery man

(Signature, full name)

Storekeeper

(Signature, full name)

Chief Accountant

(Signature, full name)

Table 3:

Thai Hoa Production - Trading Company Limited Form No. S12- DN

D21- Phuong Mai, Hanoi (Issued under Decision No. 15/2006/QD-BTC

March 20, 2006 of the Minister of Finance)

WAREHOUSE CARD (WAREHOUSE BOOK)

Card date: January 19, 2008 Sheet number: 15

- Name, brand, material specifications: Arabica coffee beans

- Unit: Ton

- Code: 12

STT	Day, Month	Document number		Interpretation	Import and export date	Quantity			Accountant's signature
STT	Day, Month	Enter	Export	Interpretation	Import and export date	Enter	Export	Existing	Accountant's signature
A	B	C	D	E	F	1	2	3	G
1	19/01	NKT2/001		Import Arabica coffee beans of Son Branch La	19/01	16,655
1	19/01	NKT2/001		Add end of period	x	16,655			x

January 19, 2008

Storekeeper

(Signature, full name)

Chief Accountant

(Signature, full name)

Manager

(Signature, full name, seal)

* At the Accounting Department:

The material accountant at the Company office bases on the VAT invoices given by the seller, the purchase list of the purchasing department, the import declaration of the Sales Department, to create a Warehouse Receipt (only recording the quantity and value according to the documents). At the end of the month, upon receiving the Warehouse Receipts and Delivery Receipts submitted by the Warehouse Keeper, the Accountant completes the Warehouse Receipt and Delivery Receipt. The Warehouse Receipts and Delivery Receipts created by the Material Accountant are the basis for checking and reconciling at the end of the period (The Warehouse Receipts and Delivery Receipts created by the Warehouse Keeper are only a means of internal management).

Upon receiving the Raw Material Delivery Vouchers with the raw material delivery request from the production department sent by the Warehouse Keeper, the Raw Material Accountant will base on the original documents there to create the Warehouse Delivery Voucher. This Warehouse Delivery Voucher is created based on both quantity and value criteria.

2.2.3 General accounting of raw materials at Thai Hoa Company.

2.2.3.1 Accounting for raw material purchases.

Depending on each source of import, the original price of raw materials includes specific costs. At Thai Hoa Company, coffee is imported from two main sources: outside purchase and import. In addition, the import into the warehouse can also be due to liquidation or inventory discovered surplus.

* Import raw materials purchased from outside (purchased domestically)

These types of coffee are obtained from sources in the provinces: Son La, Nghe An, Quang Tri, Lam Dong, Ho Chi Minh City... For raw materials purchased from outside, the original price of raw materials is determined by the purchase cost.

The Company's accountant determines the cost of purchasing raw materials, including: purchase price, non-refundable taxes, transportation, loading and unloading, storage costs during the purchasing process, and other costs directly related to the purchase.

Thus, for green coffee and coffee beans (not subject to special consumption tax), when the Company registers to pay tax according to the deduction method, the original price of raw materials is determined by the accountant through the formula:

Actual price of raw materials

import

Purchase price of raw materials on invoice

VAT not included

Cost of acquisition

Example 1: Purchase of Arabica coffee from An Giang Coffee Joint Stock Company Contract 0001942 dated February 18, 2008.

- Quantity: 30 tons

- Unit price excluding tax: 30,000,000/ton

- VAT rate: 10%

Green coffee has been fully imported according to PNK number NKT1/002 dated February 18, 2008.

- Actual imported quantity: 30 tons

- Unit price: 30,000,000/ton, not yet paid to An Giang Coffee Joint Stock Company.

- Payment voucher No. 42 dated February 19, 2008 for the transport and unloading personnel is

5,000,000 (excluding VAT).

Based on the documents in the Company's accounting books, the original price of Arabica coffee beans was determined as follows:

The purchase price of Arabica coffee on the invoice does not include VAT: 30*30,000,000 = 900,000,000 VND

Actual price of Arabica coffee beans in warehouse: 900,000,000 + 5,000,000 = 905,000,000 VND

The Company's accountant conducts accounting (according to the Company's ledger account 152 and ledger accounts 133, 331, 111) as follows:

Debit account 152.1: 905,000,000 (Details for Arabica coffee) Debit account 1331: 90,500,000

Credit account 331: 990,000,000 (details for An Giang Coffee Joint Stock Company) Credit account 111: 5,500,000

Table 4:

		INVOICE ADDED VALUE Link 2: Customer delivery February 18, 2008		Model No.: 01 GTKT – 3LL XT/2007N 0001942
Selling unit: An Giang Coffee Joint Stock Company Address: Tam Phuoc Industrial Park - Long Thanh - Dong Nai Account number: Phone: MS: 3600708142
Buyer's name: Unit name: Thai Hoa Production and Trading Company Limited. Address: D21 - Phuong Mai - Hanoi Account number: Payment method: Bank transfer MS: 0100367361
STT	Product name, service	Unit calculate	Quantity	Unit price	Total amount
A	B	C	1	2	3 = 1 x 2
1	Rice coffee Arabica	Ton	30	30,000,000	900,000,000


			Total cost of goods:		900,000,000
VAT rate: 10% VAT amount:					90,000,000
			Total payment:		990,000,000
Amount in words: Nine hundred and ninety million dong even.
Buyer ( Sign, full name)		Salesperson ( Signature, full name)		Unit Head (Sign, seal, full name)

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