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Guidance on objects applied provision for devaluation of inventories as Circular No.48/2019

2/11/2020

On 29th October, 2019, the Finance of Ministry issued Official letter No. 13030/BTC-TCDN in response to Official letter No. 8375/VPCP-ĐMDN date 18th September, 2019 about inquiry from Crowe Vietnam Co., Ltd about the objects applied provisions for devaluation of inventories as Circular No. 48/2019/TT-BTC date 08th August,2019 as below:

Circular No. 48/2019/TT-BTC date 08th August, 2019 by the Finance of Ministry guiding the appropriation and use of Provisions for devaluation of inventories, loss of financial investments, bad receivable debts and warranty for products, goods and construction work at enterprises, that takes effect from 10 October 2019 and applies for the fiscal year 2019, replaces the Circular No. 228/2009/TT-BTC and all amended Circular for Circular No. 228/2009/TT-BTC.

According Clause 3, Article 4 in Circular No. 48/2019/TT-BTC:

“3. When making financial statement, based on the enterprise’s documents proving that the original price of inventory is higher than their net realizable price and regulations prescribed in Clauses 1 and 2 of this Article, enterprises shall make provision as follows:

  1. a) If the amount of provision to be made is equal to the remaining provision for devaluation of inventory in the previous year’s statement, the enterprise shall not make additional provision.
  2. b) If the amount of provision to be made is higher than the remaining provision for devaluation of inventory in the previous year’s statement, the enterprise shall add the difference to the cost of goods sold in the period.
  3. c) If the amount of provision to be made is lower than the remaining provision for devaluation of inventory in the previous year’s statement, the enterprise shall reverse the difference and record it as a decrease in the cost of goods sold in the period.

…”

Making provision for devaluation of inventories from 2019 need to comply with the regulation at Article 4 in Circular No. 48/2019/TT-BTC and the Company does not make provision for devaluation of services and work in progress. When record additional or reversal provision need to comply with the Clause 3, Article 4 in Circular No. 48/2019/TT-BTC

According Clause 1, Article 4 in Circular No. 48/2019/TT-BTC:

“1. Provisions shall be made for devaluation of materials, tools, equipment, goods, goods in transit, goods dispatched for sale, goods stored in tax-suspension warehouse, finished goods (hereinafter referred to as inventory) which have their book original prices are higher than the net realizable value and:

- There are lawful invoices and documents according to the Finance Ministry's regulations or other documents which can prove their costs.

- They are owned by the stocking enterprise at the time of making financial statements.”

Therefore, just making provision for devaluation of materials, tools, equipment, goods, goods in transit, goods dispatched for sale, goods stored in tax-suspension warehouse, finished goods.