Account 352 - Provision for payables

1.Accounting Principles

a) This account is used to record of current provision for payables, situation of appropriation and use of provision for payables of enterprises.

b) A provision for payable only record when meet all following conditions:

- Enterprises have current debt obligation (legal obligation or jointly liable obligation) due to result from a fact happened;

- Decrease in economic benefits may happen leading to the requirement for payment of debt obligation, and;

- Giving a confident estimation on value of such debt obligation

c) Value recorded of a provision payable is the most reasonably estimated the amount which will be paid for current debt obligation at of accounting year-end at the end of the interim period.

d) The provision payable shall be set up at the time of financial Statement. In case the amount of provision for payable needs to be set up in this accounting term is higher than unspent amount of provision for payable formed in the previous accounting term, the difference is recorded in business and production costs of that accounting term. In case the amount of provision for payable needs to be set up in this accounting term is less than the unspent amount of provision for payable set up in the previous accounting term, the refunded difference is recorded a decrease in business and production costs of that accounting term.

If provision for payable on construction warranty is set up for every construction and is set up at the end of accounting year or at the end of interim accounting period. In case amount of provision for payable on construction warranty set up is higher than real expenses incurred, the difference refunded shall be recorded in Account 711 ―Other income‖

dd) Only expenses related to the provision for payable set up initially shall be offset by that provision for payable

e) Not record the provision for losses on operation in future; except they are related to a great risk contract and meet conditions for recording provision for payable. If enterprises have high risk contract, current debt obligation due to contract must be recorded and evaluated as a provision for payable, and this provision will be set up separately for every large risk contract.

g) A provision for expenses of enterprise restructuring are only recorded when having enough conditions for recording as provisions according to regulation at section ―Provisions, assets, latent debts‖ of accounting standard. When conducting the enterprise restructuring, jointly liable obligation only incurred when enterprises:

- Have official and specific plan to determine clearly the enterprise restructure, which include at least 5 following contents:

All or a part of business related;

Important positions influenced;

Positions, tasks and estimated quantity of employees who will receive compensation when they are obliged to cease job;

Expenses shall be paid, and

Time the plan is performed

- Give a reliable estimation on affected subjects and conduct restructure process by start of implementating that plan, or notice important issues of restructure to affected subjects.

h) A provision for restructuring is only estimated for expenses directly incurred from restructuring activities; those are expenses that meet both two conditions:

- Need to have for restructure activities;

- Not be related to regular activities of enterprises.

Provision for restructure excluding expenses as follows:

- Retraining or transferring existing employees;

- Marketing;

- Investing in new systems and distribution networks

Provision for payables often includes:

- Payable provisions for enterprise restructure;

- Payable provisions for product warranty;

- Payable provisions for construction warranty;

- Other payable provisions, including provision for severance allowance in accordance with provisions of the law, provision for the periodical repair and maintenance of fixed assets (under technical requirement), payable provisions for contracts with major risk in which the payable costs for the obligations relating to the contract exceed the economic benefits expected to be obtained from such contracts;

k) When setting up provision for payables, enterprises are allowed to record that provision in management expenses, payable provisions for warranty of products or goods shall be recorded in selling expense, payable provisions for warranty expenses of construction shall be recorded in manufacturing overhead expenses.

2.Structure and contents of account 352 - Provision for payables

Debit side:

- To record a decrease in provision for payables when incurring expenses related to the provision set up initially;

- To record a decrease in (refund) provision for payables when enterprises are certainly not suffer decrease on economic, due to not paying debt obligation;

- To record a decrease in provision for payables on the difference from provision for payables set up this year, less than unspent provision for payables established for previous year.

Credit side: To record provision for payables appropriated and charged to expenses

Credit Balance: To record current provision for payables at term-end.

Account 352 comprises 4 sub-accounts

- Account 3521- Provision for product warranty: This account is used to record the provision for product warranty for number of products, goods defined to consume in period;

- Account 3522 - Provision for construction warranty: This account is used to record the provision for construction warranty for works, work items completed, handed over in period;

- Account 3523 - Provision for enterprise restructuring: This account records the payable provision for restructuring enterprise such as the cost of relocation of business, business support costs to employees.;

- Account 3524 – Other payable provision: This account records the payable provisions under the provisions of the law in addition to the provision has been recorded above, such as environmental restoration costs, cleanup costs, recovery and return of premises, provision for severance allowance under the provisions of the Labor Code, cost of periodic repair, maintenance of fixed asset ...

3.Method of accounting for several major transactions

a) Method of accounting of provision for product, goods warranty

- In case enterprises sell goods for customers including warranty for repairing fails due to production fault, discovered in the warranty period of products, goods, enterprises must estimate warranty costs based on the number of products, goods determined to be consumed in period. When making provision for the cost of repairing and maintenance of products, goods sold, record:

Dr 641 - Selling expenses

Cr 352 - Provision for payables (3521)

- When incurring expenses related to payable provision for warranty of products, goods established initially, such as material costs, direct labor costs, fixed-asset depreciation expenses, outsourced services expenses...:

In case of not having the independent section on warranty of products, goods:

When incurring expenses related to payable provision for warranty of products, goods, record:

Dr 621, 622, 627, ..

Dr 133 - Deductible VAT (if any)

Cr 111, 112, 152, 214, 331, 334, 338, ...

At term-end, transferring warranty expenses of products, goods actually incurred in period, record:

Dr 154 - Work in progress

Cr 621, 622, 627, ...

In repair or warranty of products, goods, accomplished and transferred to customers, record:

Dr 352 - Provision for payables (3521)

Dr 641 - Selling expenses (Insufficient payable provision for warranty of products, goods)

Cr 154 - Work in progress

In case of having the independent section on warranty of products, goods, and sums payable for warranty section on warranty expenses of products, goods, accomplished and transferred to customers, record:

Dr 352 - Provision for payables (3521)

Dr 641 - Selling expenses (negative difference between payable provision for warranty of products, goods and real warranty expenses)

Cr 336 - Internal Payables

- When preparing the financial statements, enterprises must determine the provision for warranty for products, goods:

In case provision for payables needs to be set up at this accounting term is higher than unspent provision for payables set up in previous accounting term, the difference is accounted for into expenses, record:

Dr 641 - Selling expenses

Cr 352 - Provision for payables (3521)

In case provision for payables needs to be set up in this accounting term is less than unspent provision for payables set up in previous accounting term, the refunded difference shall be recorded a decrease in expenses, record:

Dr 352 - Provision for payables (3521)

Cr 641 - Selling expenses

b) Method of accounting of provision for construction warranty

- The provision for construction warranty is made for each work, work item completed, transferred in period. When determining the provision payable for the cost of construction warranty, record:

Dr 627- General production costs

Cr 352 - Provision for payables (3522)

- When incurring expenses related to payable provision for construction warranty established initially, such as material costs, direct labor costs, fixed-asset depreciation expenses, outsourced services expenses...:

In case enterprises carry out the construction warranty:

When incurring expenses related to payable provision for warranty, record:

Dr 621, 622, 627, ..

Dr 133 - Deductible VAT (if any)

Cr 111, 112, 152, 214, 331, 334, 338, ...

At term-end, transferring warranty expenses actually incurred in period, record:

Dr 154 - Work in progress

Cr 621, 622, 627, ...

Upon repair or warranty of construction accomplished and transferred to customers, record:

Dr 352 - Provision for payables (3522)

Dr 632 - Cost price of goods sold (the difference between the provision appropriated less than real warranty expenses)

Cr 154 - Work in progress

In case of assignment of affiliated units or outsourcing to perform warranty, record:

Dr 352 - Provision for payables (3522)

Dr 632 - Cost price of goods (the difference between the provisions appropriated less than real warranty expenses)

Cr 331, 336...

- Out of the warranty period of constructions, if constructions have no warranty, or payable provision for warranty of construction is higher than real expenses incurred, the difference must be refunded, record:

Dr 352 - Provision for payables (3522)

Cr 711 - Other income

c) Method of accounting of provisions for enterprise restructuring and other payable provisions

- When setting up provision for restructuring costs of enterprise, other payable provisions for contracts with major risk in which the costs required to pay for the obligations relating to contract exceed the economic benefits expected to be obtained from the contract (such as indemnity or compensation for failure to perform the contract, legal cases ...), record:

Dr 642 - Enterprise administrative expense (6426)

Cr 352 - Provision for payables (3523, 3524)

- When setting up provision for environmental restoration costs, cleanup costs, recovery and return of premises, provision for severance allowance under the provisions of the Labor Code...record:

Dr 627, 641, 642

Cr 352 - Provision for payables

- For fixed assets according to the technical requirements periodically prepared, accountants must advance repair costs of the fixed assets, record:

Dr 627, 641, 642

Cr 352 - Provision for payables

- When incurring expenses related to the payable provision made, record:

Dr 352 - Provision for payables (3523, 3524)

Cr 111, 112, 241, 331, ...

- When preparing financial statements, enterprises must determine payable provisions needed setting up:

In case provision for payables necessary to establish for at this accounting term is higher than unspent provision for payables established for previous accounting term, the difference is accounted for into expenses, record:

Dr 642 - Enterprise administrative expense (6426)

Cr 352 - Provision for payables (3523, 3524)

In case provision for payables necessary to establish for this accounting term is less than unspent provision for payables established at previous accounting term, the refunded difference shall be recorded a decrease in expenses, record:

Dr 352 - Provision for payables (3523, 3524)

Cr 642 - Enterprise administrative expense (6426)

d) In some cases, enterprises may seek for a third party for payment of a part or total expenses for provision (for example, through insurance contracts, compensations or warranty of suppliers), the third party may refund for all what enterprises paid. When enterprises receive the compensation of a third party to pay a part or total expenses for provision, accountants record:

Dr 111, 112...

Cr 711- Other income

dd) Accountants settle payable provisions before transforming 100%-state-owned enterprises into joint-stock companies.

Provisions payable after offsetting losses, at the time of being officially transformed into a joint stock company, if they are remaining, they shall be accounted for in the state capital increase at the time of transfer, record:

Dr 352 - Provision for payables

Cr 411- owner‘s capital

Source: Circular 200