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Perfecting fixed asset accounting to enhance fixed asset management in Vietnamese construction enterprises - 8


The above formula can result in revenue, net revenue, gross profit or net profit. The average value of fixed assets can be calculated at original cost or current value and is determined by the formula:



Average value

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Fixed assets=

Fixed assets value at the beginning of the period + Fixed assets value at the end of the period

Perfecting fixed asset accounting to enhance fixed asset management in Vietnamese construction enterprises - 8


2


(1.22)


The inverse of the fixed asset efficiency index is the depreciation rate index.

Fixed assets.



Or:


Fixed asset depreciation rate


Fixed asset depreciation rate

Average value of fixed assets

=

Output


1

=

Efficiency of fixed asset usage


(1.23)


(1.24)


Fixed asset depreciation rate reflects how much fixed assets a business must invest in to generate one unit of revenue, net revenue, gross profit or net profit. The smaller this index is and the more it tends to decrease, the better the prospects are for the efficiency of the business's fixed asset usage.

1.4. International accounting standards and experiences of some countries in accounting for fixed assets

1.4.1. International accounting standards


The International Accounting Standards (IAS) system was born with the aim of creating a " common language " for accounting practice and the use of accounting information in different countries. Countries differ in their starting point of economic development; political regime; economy; information requirements and management capabilities, leading to different accounting practices and the use of accounting information in different countries. However, the trend of economic integration and globalization of the world economy has created the inevitable need for


internationalization of accounting and auditing activities. International accounting standards were formed precisely to meet these needs.

International accounting standards are regulations and guidelines on accounting principles and methods that are standard and common foundations for countries in recording and presenting financial reporting systems. Up to now, the system of international accounting standards has been established including: International Accounting Standards for the Private Sector (IAS); International Public Sector Accounting Standards (IPSAS) and International Accounting Standards for Financial Reporting (IFRS).

The International Accounting Standards Committee (IASC) was established in June 1973 (now replaced by the International Accounting Standards Board - IASB) with the task of promulgating the system of international accounting standards. From 1973 to present, this agency has issued, revised and supplemented many international accounting standards and has been

widely applied in many countries around the world. The current system of international accounting standards includes 34 standards, including IAS 16 (Plant, machinery and equipment), IAS 17 (Leases), IAS 36 (Depreciation of assets) and IAS 38 (Intangible assets) related to fixed assets [16], [33].

International accounting standards IAS 16 and IAS 38 present concepts; methods of determining initial value; value after initial recognition; accounting methods; depreciation methods for factories, machinery, equipment, intangible assets and methods of presenting related indicators on the financial reporting system [16], [33].

Factories, machinery, equipment and intangible assets are recorded as fixed assets when satisfying two criteria at the same time: It is certain that the enterprise will gain future economic benefits from using the assets and the value of the assets to the enterprise can be reliably calculated [16, p.306]. Determining whether an expense is recorded as an asset or a cost will significantly affect the enterprise's Business Performance Report. Reputation, trust created from within the enterprise, trademarks, publishing rights, customer lists and similar items are not recorded as assets of the enterprise. Thus, the standard for recording fixed assets according to IAS is different from Vietnam,


In addition to the two standards such as IAS, Vietnam also mentions the value and time of use standards.

The initial value of plant, machinery and equipment includes the purchase price; import duties; non-refundable taxes and costs related to bringing the asset to the desired state of use; discounts and amortizations on the purchase price of the asset. Administrative costs and testing costs; costs incurred before use are also not included in the value of plant, machinery and equipment unless they are related to bringing the asset to its current working state. The value of self-constructed assets is determined equivalent to the costs of producing products for sale, the costs of materials and labor used in excess of the normal level during the construction process are not included in the original cost of the asset. In determining the initial value of fixed assets, Vietnam does not differ from IAS.

Expenditures incurred after initial recognition are recognized as an increase in the value of an asset when they increase the economic benefits that the asset can bring to the enterprise or actually improve the existing state of the asset compared to its original state. Expenditures on repair and maintenance of factories, machinery and equipment to restore and preserve the ability to bring economic benefits to the asset are recognized as expenses.

Regarding depreciation, the depreciable value of the factory, machinery and equipment needed

are allocated systematically over their useful lives. The depreciation amounts in each period are recognized as expenses unless they are included in the accounting value of other assets. The depreciation method shows the manner in which the business obtains economic benefits from the use of the asset. Depreciation methods include: Straight-line depreciation method; Declining balance depreciation method; and Units of production depreciation method. Depreciation methods

for each asset should be carried out consistently over the accounting periods unless there is a change in the way the asset is used. For intangible assets, if the pattern of economic benefits from the use of the asset cannot be determined reliably, the straight-line depreciation method is applied over the expected useful life.


not exceeding 20 years from the date of use of the asset. Basically, there is no significant difference in depreciation of fixed assets between Vietnam and IAS.

Regarding information disclosure, enterprises need to disclose accounting policies including: Calculation basis for each type of asset, depreciation method and rate applied to each type of asset. Income statements and notes need to present depreciation expenses of each type of asset and the impact of important changes in the estimation of costs related to fixed assets. Balance sheets and notes need to present the book value and accumulated depreciation of each type of asset at the beginning and end of the period, the fluctuation of the original cost of fixed assets during the period, the value of assets under construction, the value of assets used as collateral and capital commitments for the purchase of assets.

The main difference between Vietnam and IAS in disclosing information on fixed assets is the presentation of depreciation expenses of fixed assets in the income statement and the presentation of information in the Notes to the financial statements. Accordingly, Vietnam does not require the presentation of information on depreciation expenses in the financial statements. In addition to additional explanatory information in the Notes as in IAS, Vietnam also requires the presentation of commitments to sell large-value fixed assets in the future, the fair value of fixed assets temporarily not in use, the fair value of fixed assets awaiting liquidation and the original cost of fixed assets that have been fully depreciated but are still in use.

For leased assets, IAS 17 distinguishes two types of leases: operating leases and non-operating leases.

operating and financial leases. Financial leases are leases that bear many of the risks and benefits associated with owning assets. Risks include losses that may not be fully utilized, outdated technology, and changes in income due to changing economic conditions. The benefits include the benefits obtained during the economic life of the asset and those obtained from increasing the value or recovering the residual value of the asset. Operating leases are leases where the lease agreements are not financial leases [33, p.53]. In terms of accounting principles, the lessee records assets and liabilities at the same amount, the initial direct costs related to the lease

capitalised into the cost of the asset, lease payments include interest and principal, depreciation of leased assets is carried out in accordance with IAS 16. Operating lessees recognise lease payments as an expense in the income statement using the straight-line method.


straight-line or systematic method even if the payment is not made using this method. The finance lessor recognises the leased asset as a receivable at its net investment, the recognition of finance revenue is made on the basis of a constant periodic rate of return and the net investment, the initial direct costs may be recognised immediately or allocated to finance revenue over the lease term. The operating lessor classifies the leased assets according to the nature of the asset, depreciation is made in accordance with IAS 16, the rental income is recognised on a straight-line basis over the lease term unless the systematic method is more appropriate, the initial direct costs may be recognised immediately or allocated to rental income over the lease term.

IAS 36 deals with impairment losses and impairment accounting. At the balance sheet date, the recoverable amount of an asset should be estimated if there is evidence of a decline in the value of the asset [33, p.137]. Factors to consider include external indicators (such as declines in market prices and changes that may be detrimental to the entity) and internal indicators (such as evidence of obsolescence or failure to perform as expected by the entity). The recoverable amount of an asset is calculated at the higher of the net selling price and the fair value.

in use, where the net selling price is the amount that would be obtained from an asset sale between knowledgeable, willing parties and less (-) directly attributable costs of sale; value in use is the present value of the future cash flows expected to arise from the continued use of the asset and its disposal at the end of its useful life. An impairment loss exists whenever the cost of an asset exceeds its recoverable amount. When both the net selling price and the

If the estimated useful life of an asset is greater than its cost, the asset is not impaired. An impairment loss should be recognised in the income statement and accounted for as a revaluation reduction. After the impairment loss is recognised, depreciation expense should be adjusted accordingly based on the original cost.

adjustment of assets.


Thus, IAS comprehensively and fully addresses financial and accounting issues related to fixed assets in enterprises, from factories, machinery, equipment, intangible assets, asset leases to losses due to asset depreciation.

1.4.2. American Accounting


According to American accounting, fixed assets are assets with a usage period of more than one year, invested to serve production and business activities to create the main source of income for the enterprise. Fixed assets in enterprises include physical fixed assets (land, houses, machinery, equipment and means of transport); intangible fixed assets (patents, inventions, copyrights, trademarks, establishment costs, privileges and reputation, trust) and natural resources (coal mines, gas mines, mineral mines) [44], [46], [49], [51]. The basic difference between Vietnam and the US is that Vietnam does not recognize land as a physical fixed asset (the reason for this difference is the ownership regime) and establishment costs are recorded directly or gradually allocated to production and business costs.

The original cost of fixed assets includes all necessary and reasonable costs to put the fixed assets into a position ready for use. For purchased fixed assets, the original cost is determined based on the purchase price, plus (+) transportation, assembly, and testing costs, minus (-) discounts received for early payment. For self-built houses and equipment, the original cost is the value of the construction, including the value of materials, workers' wages, design fees, insurance fees, and licensing fees. For land, the original cost includes the purchase price, brokerage commissions, registration fees, and cleaning and renovation costs. In determining

In determining the original cost of fixed assets, Vietnam excludes trade discounts from the original cost, and the payment discounts received are recorded as an increase in financial revenue, while the US does not exclude trade discounts from the original cost because trade discounts in US accounting are the difference between the listed price and the invoice price.

Regarding the fluctuation of fixed assets, fixed assets in the enterprise increase due to the following cases: purchase, donation and self-construction. For purchased fixed assets, based on documents related to the cost of purchasing fixed assets, accountants record an increase in fixed assets, a decrease in cash or an increase in payables. If purchasing a construction on land, the value of the house and the value of the land must be determined separately to record in the corresponding accounts. For donated fixed assets, accountants record


Increase fixed assets and increase revenue from donations. In case of self-construction, accountants collect construction costs in the intermediate account (TK XDCB), when the project is completed, the accounting settlement records an increase in original price. Fixed assets in the enterprise may decrease due to liquidation, transfer, donation and the impact of causes such as fire, flood, loss. For liquidated fixed assets, the fixed asset's value (if not fully depreciated) and liquidation costs are recorded as expenses (loss on liquidation) on the current period's Business Results Report. Fixed assets sold are accounted for by additional depreciation up to the time of sale, the difference between the selling price and the value is recorded as loss on asset sale (expense) or profit on asset sale (revenue) on the Business Results Report. Costs incurred during the process of transferring fixed assets will increase expenses (if loss) or decrease revenue (if profit) on the current period's Business Results Report. When an enterprise donates or presents fixed assets to other organizations or individuals, the donation cost

are accounted for at the market value of the asset, the difference between the market value and the fair value is recorded as a gain or loss on transfer. In case the fixed asset decreases due to fire, flood or loss, the actual value of the damage is recorded as an expense on the current period's Business Results Report. Thus, in accounting for fluctuations in fixed assets, there is no significant difference between Vietnam and the US.

Regarding the exchange of fixed assets, American accountants refer to two cases of exchange: exchange of fixed assets of the same type and exchange of different types. For the exchange of fixed assets of the same type, the reason for the exchange (the agreed price is greater than the fair value of the fixed assets taken away) is recorded as a reduction in the value of the received fixed assets. If the exchange of fixed assets of the same type results in a loss (the fair value is greater than the agreed price of the fixed assets taken away), in terms of accounting, the loss is recorded as an expense on the current period's Business Results Report, and in terms of income tax, the exchange loss is recorded as an increase in the depreciable value of the received fixed assets. When the loss is insignificant, the income tax method can be used for financial accounting purposes. For the exchange of fixed assets of different types, the gain or loss from the exchange is recorded as revenue or expense on the current period's Business Results Report. Exchange of fixed assets in Vietnam includes like-kind exchange and dissimilar exchange, in which like-kind exchange does not create any profit or loss.


Regarding depreciation of fixed assets, American accountants divide them into two cases: depreciation for financial accounting purposes and depreciation for tax purposes. For financial accounting purposes, fixed assets can be depreciated according to the following methods: Straight-line method; Production method; Decreasing balance method; Sum of years of use method. For tax purposes, before 1981, the declining balance method and the sum of years of use method were used.

used to determine depreciation expense. From 1981 to 1986, the Accelerated Cost Recovery System (ACRS) was used and from January 1, 1987 it was replaced by the Modified Accelerated Cost Recovery System (MACRS). According to MACRS, all fixed assets are divided into one of eight periods of use: 3, 5, 7, 10, 15, 20, 291/2 and 311/2 years. The tax authority issues a table of depreciation rates for fixed assets according to each period of use. When calculating depreciation of fixed assets according to MACRS, the value to be depreciated is the original cost, that is, excluding the estimated salvage value. However, the modified accelerated cost recovery system is not used in preparing financial statements because this method allocates depreciation over a period shorter than the estimated useful life of the fixed asset. When calculating depreciation of fixed assets, accountants record an increase in costs and an increase in accumulated depreciation of fixed assets. For fixed assets, the straight-line depreciation method is used unless the enterprise proves that a more appropriate depreciation method is used. The time used to calculate depreciation for fixed assets such as patents, copyrights and contract rights is according to the effective period prescribed by law, contract

The contract or nature of the asset determines, while for intangible assets such as goodwill and trademarks that have an indefinite useful life, the useful life

to calculate the maximum depreciation is 40 years. Depreciation of intangible fixed assets is recorded as an increase in cost and a direct decrease in intangible fixed assets, which also means that intangible fixed assets are presented on the Balance Sheet at their undepreciated value. The basic difference between Vietnam and the US in calculating depreciation of intangible fixed assets is shown in the following aspects: applying the depreciation method according to the sum of the years of use, depreciation time

for intangible fixed assets and present information about intangible fixed assets on the Balance Sheet.

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