Account 413 - exchange differences

 

1.General provisions on exchange rates and exchange differences

Exchange differences means differences incurred from real exchange or the conversion of the same amounts of foreign currency into accounting currency unit according to different foreign exchange rates. Exchange differences primarily incurred in the following cases:

- Actual purchase, sale, transfer, exchange, payment of economic operations which incurred in foreign currency in period;

- Revaluating accounts derived from foreign currencies at the time of financial statement;

- Convert financial statements prepared in foreign currencies into Vietnam dong.

Exchange rate types (hereinafter referred to as exchange rates) used in accounting

Enterprises have economic transactions incurred in foreign currency must record in accounting books and make financial statements in accordance with a unified currency that is Vietnam dong, or official currency used in accounting. The conversion of foreign currencies into Vietnam dong shall be based on:

- Actual transaction exchange rates;

- Exchange rates recorded in accounting books.

When determining tax obligations (declaration, settlement and payment), enterprises must comply with the provisions of the laws on taxation.

The principles for determining the actual real exchange rates:

a) Real exchange rates for foreign currency transactions in period:

- Real exchange rate when buying or selling foreign currency (spot contracts of foreign exchange sale, forward contracts, futures contracts, options contracts, swap contracts) : is exchange rates concluded in contracts of foreign exchange sale between enterprises and commercial banks;

- If the contract does not specify the exchange rate of payment, enterprises shall record in accounting books in accordance with the following principles:

Real exchange rate upon capital contribution or receipt of contributed capital: is exchange rate of purchase of foreign currency of the bank where enterprises open the account to receive capital from investors at the date of the contribution of capital;

Real exchange rate upon recording receivables: Is exchange rates of purchase of commercial banks where enterprises assigned customers to make payment at the time of incurred transactions;

Real exchange rate upon recording liabilities: Is exchange rates of purchase of commercial banks where enterprises expect to conduct transactions at the time of incurred transactions;

For purchases of assets or expenses paid immediately in foreign currency (not through the accounts payable), the real exchange rate is the rate of purchase of commercial banks where enterprises make payments.

b) Real exchange rate upon re-determining accounts derived from foreign currencies at the date of the financial statements: is exchange rate announced by commercial banks where enterprises regularly conduct transactions (chosen by the enterprises) under the following principles:

- Real exchange rate upon re-determining accounts derived from foreign currencies classifies as asset: is exchange rates of purchase of commercial banks where enterprises regularly conduct transaction at the time of the financial statements. For foreign currency deposited in bank, the real exchange rate upon revaluation is exchange rate of purchase of the bank where enterprises open foreign currency accounts.

- Real exchange rate upon revaluation of accounts derived from foreign currencies classified as liabilities: Is exchange rates of selling foreign currency of commercial banks at the time of financial statements;

- Units of a Group may apply the same exchange rate prescribed by the parent company (ensure closeness to the real exchange rates) to revalue accounts derived from foreign currencies arising from the insider trading.

Principles for determining accounting book exchange rates: Accounting book exchange rates include : specific identification real accounting book exchange rate or mobile weighted mean accounting book exchange rate ( weighted mean exchange rates after entry)

- Specific identification real accounting book exchange rate: is exchange rate upon recovery of receivable, deposit or settlement of debts payable in foreign currencies, determined according to the exchange rate at the time of incurred transactions or at the time of reevaluation at the end of term of each object.

- mobile weighted mean accounting book exchange rate is exchange rate used in credit side upon payment in foreign currency, determined on the basis in which the total value recorded in Debit side is divided by the actual amount of foreign currency at the time of payment.

The principle for application of exchange rates in the accounting rate

a) When incurring transactions in foreign currency, the real exchange rate at the time of incurred transactions shall be used to convert into the currency recorded in accounting book for:

- These accounts record other revenues, income. Particularly for the sale of goods or provision of services or income related to revenue received in advance or transactions received cash in advance of buyers, revenue, income corresponding to the sum received in advance shall be applied the real exchange rate at the time of receipt in advance of buyers (not applicable under real exchange rate at the time of receipt of revenues, income).

- These accounts record the cost of production, business and other expenses. Particularly for the allocation of prepaid expenses to cost of production, business in period, expenses shall be recorded at real exchange rates at the time of prepayment (not applicable under real exchange rates at the time of receipt of expenses).

- These accounts record assets. Particularly for the asset purchased related to prepaid transaction to sellers, the value of assets corresponding to prepaid sum shall be applied real exchange rate at the time of prepaying to the seller (not applicable under real exchange rate at the time of recording assets).

- Owner‘s equity account;

- Debit side of accounts Receivable; Debit side of cash capital accounts; Debit side of accounts payable when incurring transactions prepaid to the seller.

- Credit side of accounts payable; Credit side of accounts receivable when incurring transactions of which sum of buyers is received in advance;

b) When incurring transactions in foreign currency, specific identification real accounting book exchange rates shall be used to convert into the currency of accounting book for the following account types:

- The credit side of accounts receivable (except for the transaction of which money is received in advance); the Debit side of accounts receivable at the time of final settlement of the sum received in advance due to the transfer of products, commodities, fixed assets, provision of service, volume accepted; the credit side of deposited accounts, prepaid expenses;

- The Debit side of accounts payable (excluding transaction prepaid to the seller); The Credit side of account payable at the time of final settlement for cash advanced to sellers due to receipt of products, commodities, fixed assets, services, volume acceptance

- In case if in the period incurring many sums receivable or payable in foreign currency with the same object, the specific identification real accounting book exchange rate for each object is determined on the basis of mobile weighted mean for transactions with such object.

c) When making a payment in foreign currency, the mobile weighted mean accounting book exchange rate shall be used to convert into the currency recorded in accounting books in the Credit side of the cash accounts.

Principles for determining accounts derived from foreign currencies : are assets recovered in foreign currency or debts payable in foreign currencies. Accounts derived from foreign currencies may include:

Cash, cash equivalents, term deposits in foreign currencies

b) Debts receivable, payable derived from foreign currencies, except:

- Prepayments to sellers and prepaid expenses in foreign currencies. If at the time of report, there is firm proof that sellers cannot provide goods, services and enterprises must take back the prepayments in foreign currencies, these sums are considered currency derived from foreign currencies.

- Sums prepaid by buyers and sums received in advance in foreign currencies. If at the time of report, there is firm proof that enterprises cannot provide goods, services and must pay back sums received in advance in foreign currencies for buyers, these sums are considered currency derived from foreign currencies.

c) The borrowings, loans of any kind are entitled to be recovered or be obliged to be repaid in foreign currency.

d) The deposit entitled may be received back in foreign currencies; Sum received from deposit must be repaid in foreign currency.

 

2.Accounting Principles for exchange differences

Concurrently, enterprises must monitor original currency in detailed accounting book of accounts: Cash, cash in bank, cash in transit, receivables, payables.

b) All sums of exchange differences are recorded immediately in financial income (if gain) or financial expense (if loss) at the time of incurring.

Particularly exchange differences in the stage prior to operation of enterprises of which 100% charter capital is held by the State carrying out projects, WORKS OF NATIONAL IMPORTANCE associated with tasks of macroeconomic stability, security and national defense are gathered, recorded on account 413 and is gradually allocate into financial income or financial expense as enterprises operate under the following principles:

- Accumulated exchange rate losses in the period before operation are allocated directly from account 413 to financial expense, are not transferred through account 242 - prepaid expenses;

- Accumulated exchange rate gains in the period before operation are allocated directly from account 413 to financial income, are not transferred through account 3387 – Unearned Revenues;

- Allocation time shall comply with the provisions of law for enterprises of which 100% charter capital is held by the State. Particularly allocation of minimum loss on forex in each period must ensure that it is not less than the pre-tax profit before allocation of loss on forex (after allocation of loss on forex, pre-tax profit of income statement shall be zero).

c) Enterprises must revalue accounts derived from foreign currencies according to real exchange rates at all time of financial statement in accordance with law. Enterprises which have used financial instruments to provision for foreign exchange risk shall be not revalued loans, liabilities derived from foreign currencies which have been used financial instruments for provision for foreign exchange risk

d) Enterprises are not capitalized sums of exchange differences in the value of unfinished assets.

3.Structure and contents of account 413 - Exchange differences

Debit side:

- Loss on forex due to revaluation of accounts derived from foreign currencies;

- Loss on forex in the stage prior to operation of enterprises of which 100% charter capital is held by the State carrying out projects, works of national importance associated with tasks of macroeconomic stability, security and national defense

- Transfer of gain on forex to financial income;

Credit side:

- Gain on forex due to revaluation of accounts derived from foreign currencies;

- Loss on forex in stage prior to operation of enterprises of which 100% charter capital is held by the State carrying out projects, works of national importance associated with tasks of macroeconomic stability, security and national defense.

- Transfer of loss on forex to financial expense;

Account 413 may have Debit balance or Credit balance.

Debit balance: Loss on forex in the period before the operation of enterprises of which 100% charter capital is held by the State carrying out projects, works of national importance associated with tasks of macroeconomic stability, security and national defense

Credit balance: Loss on forex in stage prior to operation of enterprises of which 100% charter capital is held by the State carrying out projects, works of national importance associated with tasks of macroeconomic stability, security and national defense.

Account 413 - exchange differences comprises 2 sub - accounts:

- Account 4131- Exchange differences due to revaluation of accounts derived from foreign currencies; Recording foreign exchange rate differences due to revaluation of accounts derived from foreign currencies (gain or loss on forex), at the end of the fiscal year of business activities, including activities of capital investment (business and production enterprises which have also activities of capital investment)

- Account 4132 - exchange differences in stage prior to operation: Recording exchange rate differences incurred and exchange rate differences due to revaluation of accounts derived from foreign currencies in stage prior to operation. This account shall only be applied to enterprises of which 100% charter capital is held by the State carrying out projects, works of national importance associated with tasks of macroeconomic stability, security and national defense.

Method of accounting for several major transactions

Accounting for foreign exchange rate differences incurred in period (including exchange differences in stage prior to operation of enterprises of which of which 100% charter capital is not held by the State.

When purchasing materials, goods, fixed assets, services paid in foreign currency:

Dr 151, 152, 153, 156, 157, 211, 213, 217, 241, 623, 627, 641, 642 (exchange rate at the transaction date)

Dr 635 - financial expense (loss on forex)

Cr 111 (1112), 112 (1122) (according to exchange rate recorded in the accounting book)

Cr 515 - financial income ( gain on forex)

b) When buying materials, goods, fixed assets, services from suppliers for whom payment has not yet paid, when having loans or receiving internal debts, etc in foreign currency, forex at the transaction date will be based to record:

Dr 111, 112, 152, 153, 156, 211, 627, 641, 642 ...

Cr 331, 341, 336 ...

c) When advancing money for the seller in foreign currency for the purchase of materials, goods, fixed assets and services:

- Accountants record the advance amount to the seller in accordance with the real exchange rate at the time of the advance, record:

Dr 331 - Payable to suppliers (real exchange rate at the date of the advance)

Dr 635 - financial expense (loss on forex)

Cr 111 (1112), 112 (1122) (according to exchange rate recorded in the accounting book)

Cr 515 - financial income ( gain on forex)

- Upon receipt of materials, goods, fixed assets and services from the seller, accountants record under the following principles:

For the value of materials, goods, fixed assets, services corresponding to the amount in foreign currency advanced to the sale, accountants record in accordance with the real exchange rate at the time of the advance, record:

Dr 151, 152, 153, 156, 157, 211, 213, 217, 241, 623, 627, 641, 642

Cr 331 - Payable to sellers (real exchange rate at the date of the advance)

For the value of unpaid materials, goods, fixed assets and services, accountants record in accordance with the real exchange rate at the time of incurring (transaction date), record:

Dr 151, 152, 153, 156, 157, 211, 213, 217, 241, 623, 627, 641, 642 (exchange rate at the transaction date)

Cr 331 - Payable to sellers (real exchange rate at the date of transaction)

d) When paying debts payable in foreign currencies (payables to sellers, loans, finance lease liabilities, or internal debts, etc), record:

Dr 331, 336, 341,… (exchange rates recorded in accounting books)

Dr 635 - financial expense (loss on forex)

Cr 111 (1112), 112 (1122) (exchange rate recorded in the accounting book)

Cr 515 - financial income ( gain on forex)

e) When incurring revenue, other income in foreign currency, based on the real exchange rate at the date of the transaction, record:

Dr 111 (1112), 112 ( 1122), 131...(real exchange rate at the transaction date)

Cr 511, 711 (real exchange rate at the transaction date)

g) When receiving money in advance from the buyer in foreign currency for provisions of materials, goods, fixed assets and services:

- Accountants record sum received in advance of buyers in accordance with the real exchange rate at the time of receipt, record:

Dr 111 (1112), 112 (1122)

Cr 131 - Receivables from customers.

- Upon transfer of materials, goods, fixed assets and services to buyers, accountants record under the following principles:

For revenue, income corresponding to the sum in foreign currency received in advance of the purchasers, accountants record at the real exchange rates at the time of receipt in advance, record:

Dr 131 - Receivables from customers (the real exchange rate at the time of receipt in advance)

Cr 511, 711.

For unpaid revenue, income, accountants record in accordance with the real exchange rate at the time of incurring, record:

Dr 131 - Receivables from customers.

Cr 511, 711.

h) When receiving accounts receivable in foreign currency, record:

Dr 111 (1112), 112 (1122) (real exchange rate at the transaction date)

Dr 635 - financial expense (loss on forex)

Cr 131, 136, 138 (exchange rate recorded in the accounting book)

Cr 515 - financial income ( gain on forex)

i) When lending, investing in foreign currencies, record:

Dr 121, 128, 221, 222, 228 (real exchange rate at the transaction date)

Dr 635 - financial expense (loss on forex)

Cr 111 (1112), 112 (1122) (exchange rate recorded in the accounting book)

Cr 515 - financial income ( gain on forex)

k) Deposits in foreign currency

- When foreign currencies are deposited, record :

Dr 244 - Pledge, mortgage, deposit

Cr 111 (1112), 112 (1122) (exchange rate recorded in the accounting book)

- Upon receipt of deposit, record :

Dr 111 (1112), 112 ( 1122) (real exchange rate upon receipt)

Dr 635 - financial expense (loss on forex)

Cr 244 - Pledge, mortgage, deposit (exchange rates recorded)

Cr 515 - financial income ( gain on forex)

Accounting for foreign exchange rate differences incurred due to revaluation of accounts derived from foreign currencies

a) When preparing financial statements, accountants revaluate accounts derived from foreign currencies at real exchange rate at the time of the report:

- If incurring gain on forex, record:

Dr 1112, 1122, 128, 228, 131, 136, 138, 331, 341...

If incurring loss on forex, record:

Dr 413 - exchange differences (4131)

Cr 1112, 1122, 128, 228, 131, 136, 138, 331, 341...

b) Accounting for handing of foreign exchange rate differences incurred due to revaluation of accounts derived from foreign currencies: Transferring total foreign exchange rate differences revaluated (According to net amount after offsetting incurring amount in Debit and Credit of Account 4131) into financial expenses (if loss on forex), or financial income (if gain on forex) to determine result of business activities:

- Transferring gain on forex revaluated at the fiscal year-end to financial income, recorded:

Dr 413 - exchange differences (4131)

Cr 515 - financial income ( gain on forex)

- Transferring loss on forex revaluated at the fiscal year-end to financial income, recorded:

Dr 635 - financial expense (loss on forex)

Cr 413 - exchange differences (4131)

c) Accounting for exchange differences incurred in stage prior to operation of enterprises of which 100% charter capital is held by the State carrying out projects, works of national importance associated with tasks of macroeconomic stability, security and national defense:

Units apply all the provisions of the exchange rate and accounting principles like other enterprises, except:

- Recording gain on forex upon incurring is recorded in Credit side of Account 413 - Exchange rate differences;

- Recording loss on forex upon incurring is recorded in Debit side of Account 413 - Exchange rate differences;

When enterprises operate, accountants transfer exchange differences to financial income or financial expense.

d) Handling of remaining exchange rate differences on account 242 - Prepaid expenses and account 3387 - unearned revenue:

- Enterprises which have not allocated loss on forex of stage prior to operation (recording on account 242 before this Circular take effects) must transfer the entire loss on forex to financial expense to determine income statement in period, record:

Dr 635 - financial expense

Cr 242 - Prepaid expenses

- Enterprises which have not allocated gain on forex of stage prior to operation (recording on account 3387 before this Circular take effects) must transfer the entire gain on forex to financial income to determine income statement in period, record:

Dr 3387 – Unearned revenue

Cr 515 - financial income.

Source: Circular 200