Accounting principles of owner’s equity

Owner‘s equity is the remaining net assets of enterprises owned by shareholders, contributing members (owners). Owner‘s equity is recorded by each form source such as:

- Capital contributed by the owners;

- Profit from operations;

- Differences upon asset revaluation.

Accountants do not record contributed capital under charter capital on business registration certificate. The owner‘s equity mobilized, received from owners shall always be recorded at the amount actually contributed, absolutely shall be not recorded at the amount pledged contribution of owners. In case of receiving contributed capital by non-monetary assets, accountants must record according to the fair value of non-monetary assets at the date of contribution.

Receiving contributed capital by the kind of intangible assets, such as copyright, right to develop and use property, trademarks, brands ... shall only be carried out under provisions of law or permission of competent bodies. When the law does not have specific regulations on this issue, the capital contribution by trademarks, brand shall be accounted as asset lease or franchising, in which:

- For the side contributing capital by brand, trademark, trade name: Record sum received from using the trademark, trade name of the other side as revenue from lease of intangible asset, franchising, do not record an increase in the value of investments into other units and income of owner‘s equity corresponding to the investment value;

- For the side receiving capital contribution by brand, trademark, trade name: Do not record the value of brand, trademark, trade name and record an increase of owner‘s equity corresponding to the value of the brand, trademark, trade name received the contributed capital. Payments for the use of brand, trademark, trade name are recorded the asset rental costs, the franchise cost.

The use of owner‘s capital, differences upon asset revaluation, development investment funds to subsidize business shall comply with the decision of the owners; enterprises must fully carry out procedures as prescribed by law.

The distribution of profit is only made when the enterprises have undistributed post-tax profits. All cases of payment of dividends, profits for the owners exceeding the undistributed post-tax profits shall be essentially decrease of contributed capital, enterprises must fully comply with the procedures prescribed by law and adjust the Business registration certificate.

 

Account 411- Owner’s capital

 

1.Accounting Principles

a) This account is used to record the current capital invested by owners and increase or decrease of owner‘s capital. Subsidiary companies, units who have legal status in dependent cost-accounting, recorded the capital invested in this account by parent company.

Depending on the operating characteristics of each unit, this account may be used in the unit without legal status in dependent cost-accounting to record the working capital allocated by superior units (in case of not recorded in account 3361 – Internal payable to working capital).

b) Owner‘s capital shall include:

- Initially and additionally contributed capital of owners;

- Sum added from funds under owner‘s equity, post-tax profits of the business;

- The capital component of the convertible bond (options of conversion of bonds into shares);

- Non-refundable aids, other sums received allowed recording an increase of owner‘s capital by competent agencies.

c) Enterprises shall only account for in account 411 - "owner‘s capital" according to the actual amount of capital contributed by owners, not record in accordance with committed, receivable sum of owners.

d) Enterprises must detailed account for owner‘s capital according to each form source of capital (such as contributed capital of owners, capital stock premium, and other capital) and monitor detailed each organization, individual to participate in contribution of capital.

dd) Enterprises only record a decrease of owner‘s capital in case:

- Enterprises repay the capital for the State budget or are mobilized capital for other enterprises under decision of competent agencies;

- Enterprises repay capital for owners, cancel stock fund in accordance with the law;

- Enterprises dissolve; terminate their operations in accordance with law;

- Enterprises are under other cases stipulated by law.

e) Capital holding of investors is determined in foreign currency

- When the investment license defining the charter capital of the enterprise is determined in foreign currency equivalent to an Vietnam dong amount, determining the contributed capital by investors in foreign currencies (surplus or deficit, enough compared with charter capital) is based on the amount of foreign currency actually contributed, is not taken into account the conversion of foreign currencies into Vietnam Dong according to investment license.

- Where enterprises record in accounting books, prepare and present financial statements in Vietnam Dong, when investors contribute capital in foreign currency according to progress, accountants must apply the actual exchange rates at the time of actual contribution to convert into Vietnam Dong and record in owner‘s capital, capital stock premium (if any).

- During operation, the balance of Account 411 ―owner‘s capital‖ derived from foreign currencies shall not be revalued.

g) In case of receipt of contributed capital in asset, owner‘s capital must be recorded an increase according to revaluated prices of assets accepted by capital contributors. Intangible assets such as brands, trademarks, trade names, rights of development of projects ... shall only be recorded an increase the contributed capital if relevant law provisions allow.

h) For joint-stock company, contributed capital of the shareholders is recorded according to actual price of stock issuance, but is recorded in detail in two separate criterions: Contributions from owners of capital stock premium:

- Contributions from owners are recorded according to par value of shares and are monitored in details for common shares with voting rights and preference shares. Enterprises must record in detail separately 2 types of preference shares:

Preference shares are classified as owner‘s equity if the issuer has no obligation to repurchase such preferred shares.

Preference shares are classified as liabilities if issuers are required to repurchase such preference shares at a determined time in the future and obligation in repurchase of shares must be specified in issuance records at the time of the issuance of shares.

- Share premium shall record the difference between the par value and issue price of shares (including the case of re-issuing stock fund) and can be a positive premium (if the issue price is higher than par value) or negative premium (if the issue price is lower than par value).

i) Principles for determining and recording options of conversion of bonds into shares (the capital component of the convertible bond):

Option of conversion of bonds into shares arising when enterprises issue bonds that can be converted into a certain number of shares shall be prescribed in issuance plan.

- The value of the capital component of the convertible bond is defined as the difference between the total sums received from the issuance of convertible bonds and the value of the debt component of convertible bonds (see the provisions of the account 343 - Bonds issued).

- At the time of initial recording, the value of stock options of convertible bonds is recorded separately in owner‘s capital. At the bond maturity, accountants shall record this option as capital stock premium.

 

2.Structure and content of account 411 - Owner’s capital

Debit side: Owner‘s capital decreases due to:

- Repayment of capital for the owners of capital;

- Transfer of funds to another unit;

- Issuance of shares with price lower than par value;

- Dissolution, termination of business operations;

- Compensating for business losses under decision of the competent authority;

- Cancellation of treasury stocks (for joint stock companies)

Credit side: Owner‘s capital increases due to:

- Capital contribution of the owners;

- Capital addition from business profits, from the funds of owner‘s equity;

- Issuance of shares with price higher than par value;

- Arising the option of conversion of bonds into shares;

- The value of gifts, donations and financing (after deduction of taxes payable) recorded an increase of owner‘s capital in accordance with the decision of the competent authority.

Credit balance: Current owner‘s capital of enterprises

Account 411- Owner’s capital comprises 4 sub-accounts:

- Account 4111- Contributions from owners: This account shall record actual capital invested by the owner according to companies‘ regulations of owners‘ capital. For joint-stock companies, capital contributed from issuing shares will be recorded in this account upon face value.

For joint-stock company, account 4111- Contributions of owners comprises 2 sub-sub accounts:

Account 41111 - Common shares with voting rights: This account records the total par value of common shares with voting rights;

Account 41112 - preference shares; This account records the total par value of preference shares. Enterprises must record in detail in 2 main groups: One group is classified and presented as owner‘s equity (at item 411a of the Balance sheet); One groups is classified and presented as liabilities (at item 342 of the balance sheet)

- Account 4112- Share premium: This account records the difference between the issue price and the par value of shares; The difference between price of repurchasing of treasury stocks and the re-issue price of treasury stocks (for joint stock companies). This account may have credit balances or debt balances

- Account 4113- option of bond conversion: This account is only used in the side issuing convertible bonds, used to record the structure of the capital (stock options) of convertible bonds at the time of reporting.

Structure and contents of accounts 4113 - "Option of bond conversion”

Debit side: Transfer of value of stock options to record an increase share premium at the time of bond maturity.

Credit side: Value of stock options of convertible bonds recorded at the time of issuance.

Credit balance: Value of stock options of convertible bonds recorded at the time of report.

- Account 4118 - Other capital: this account shall record operating capital set up additionally from the result of business activities or given as gifts, presents, financing and asset revaluation (if these items are allowed to record a decrease or increase in investment capital)

3.Method of accounting for several major transactions

When actually receiving contribution capital of the owners, record:

Dr 111, 112 (if receiving capital contribution in cash)

Dr 121, 128, 228 (if receiving capital contribution in shares, bonds, investments in other enterprises)

Dr 152, 155, 156 (if receiving capital contribution in inventory)

Dr 211, 213, 217, 241 (if receiving capital contribution in fixed assets, invested real estate)

Dr 331, 338, 341 (if transferring loans, liabilities into contributed capital)

Dr 4112, 4118 (the difference between the values of assets, liabilities transferred into capital lower than the value of capital counted as capital contribution of owners)

Cr 4111- Contributions from owners

Cr 4112, 4118 (the difference between the values of assets, liabilities transferred into capital higher than the value of capital counted as capital contribution of owners).

In case joint stock companies issue shares to mobilize capital from shareholders

When receiving money for buying shares from shareholders with price issued at face value of shares, record:

Dr 111, 112, ...(Face value)

Cr 4111 - Contributions from owners (face value)

Joint-stock company shall record in detail face value of common shares with voting rights on account 41111; The face value of preference shares on account 41112

b) When receiving money for buying shares from shareholders with difference between the issuance price and face value of shares, record:

Dr 111.112 (issue price)

Dr 4112 - Share premium (issue price less than face value)

Cr 4111 - Contributions from owners (face value)

Cr 4112 - Share premium (issue price higher than face value)

c) Costs directly related to the issuance of shares, record:

Dr 4112- Share premium

Cr 111, 112.

In case joint stock companies issue shares from source of owner‘s equity:

a) In case a joint stock company is entitled to issue additional shares from share premium, accountants shall base on records, accounting records related, record:

Dr 4112- Share premium

Cr 4111- Contributions from owners

b) In case a joint stock company is entitled to issue additional shares from the development investment funds, record:

Dr 414 - development investment funds

Cr 4111- Contributions from owners

Cr 4112 - Share premium (if any)

c) In case a joint stock company is entitled to issue additional shares from the undistributed post-tax profits (stock dividend), record:

Dr 421 - undistributed post-tax profits

Cr 4111- Contributions from owners;

Cr 4112 - Share premium (if any)

In case a joint stock company issues shares to invest in other enterprises (including the case of a business consolidation under the form of share issuance)

a) In case of issuing shares with price higher than the face value, record:

Dr 221 – Investment in subsidiary companies

Cr 4111- Contributions from owners;

Cr 4112 - Share premium (if any)

b) In case of issuing shares with price less than the face value, record:

Dr 221 – Investment in subsidiary companies

Dr 4112 - Share premium (if any)

Cr 4111- Contributions from owners

In case a joint stock company is entitled to issue bonus shares from the reward fund to increase owner‘s capital, record:

Dr 3531 – Reward fund

Dr 4112 - Share premium (issue price less than face value)

Cr 4111- Contributions from owners

Cr 4112 - Share premium (issue price higher than face value).

treasury stocks accounting shall be as follows

a) When purchasing treasury stocks, accountants must record according to the actual purchase price, record:

Dr 419 - treasury stocks

Cr 111, 112.

b) When re-issuing treasury stocks, record:

Dr 111,112 (issue price)

Dr 4112 - Share premium (issue price less than book value)

Cr 419 - treasury stocks (book value)

Cr 4112 - Share premium (issue price higher than book value of treasury stocks)

c) When joint-stock company cancel treasury stocks:

Dr 4111 - Contributions from owners (face value)

Dr 4112 - Share premium (re-purchase price higher than face value)

Cr 419 - treasury stocks (book value)

Cr 4112 - Share premium (re-purchase price less than face value)

When enterprises supplement charter capital from other legitimate sources, enterprises must transfer to the invested capital of owners, record:

Dr 412, 414, 418, 421, 441

Cr 411 - owner‘s capital (4111).

When construction set up by investment capital for construction accomplished, or procurement of fixed assets are finished and used for operating activities, settlement of approved investment capital, accountants shall record an increase in historical costs of fixed assets, concurrently; record an increase in invested capital:

Dr 441 - Capital for capital investment

Cr 4111- Contributions from owners

When receiving gifts, presents, financing and competent agencies request to record an increase in state capital, record:

Dr 111, 112, 153, 211…

Cr 411 - owner‘s capital (4118).

Other cases where the competent authorities do not request to record an increase in state capital, gifts presents, financing shall be recorded in other income.

When refunding contributed capital for owners, record:

Dr 411 - owner‘s capital (4111, 4112).

Cr 111, 112.

When returning contributed capital for owners, record:

- Returning contributed capital in cash, inventory, asset, record:

Dr 4111- Contributions from owners

Cr 111, 112, 152, 155, 156 ... (book value).

- Return contributed capital in fixed assets, record:

Dr 411 - Owner‘s capital

Dr 214 - Depreciation of fixed assets

Cr 211, 213.

- The difference between book value of the assets returned to capital owners and contributed capital of owners recorded make increase or decrease of the other capital of owners.

Accounting of bond conversion option

- At the time of the issuance of bonds entitled to convert into shares, accountants shall determine the value of principal and stock options of convertible bonds by discounting the nominal value of future payments to current value, record:

Dr 111, 112 (total sum received from the issuance of convertible bonds)

Cr 3432 - convertible bond (principal)

Cr 4113 - bond conversion option (the difference between received sum and the principal of convertible bonds).

- At bond maturity, if bondholders exercise the option to convert bonds into shares, accountants record a decrease in principal of converted bonds and record increase in owner‘s capital, record:

Dr 3432 - convertible bond

Cr 4111 - Contributions from owners (face value)

Cr 4112 - Share premium (the difference between the value of additional issued shares at their par value and the value of the principal of convertible bonds).

- At bond maturity, accountants transfer the value of stock options of bonds convertible to share premium (including cases where bondholders do not exercise the option), record:

Dr 4113 - Bond conversion option

Cr 4112- Share premium

Guiding accountanting for increase, decrease the state capital in 100%-state-owned enterprises before changing into joint-stock companies

a) For assets detected through inventory, based on the "record settlement of surplus, shortage assets through inventory ", record:

Dr 3381 - Surplus of assets awaiting resolution

Cr 331 - Payable to sellers (if the surplus assets are sellers‘)

Cr 338 – Other payables (3388)

Cr 411 - Owner‘s capital (for surplus assets undetermined the cause and unfound their owners).

b) Accounting for unneeded materials, assets, accumulated assets, and assets awaiting liquidation which have not settled to corporations, state-owned general companies, the parent company, and other independent state-owned companies, record:

- If enterprises transfer materials and goods unneeded, accumulated and awaiting liquidation which have not settled to corporations, state-owned general companies, the parent company, and other independent state-owned companies, record:

Dr 411 - owner‘s capital

Cr 152, 153, 155.

- If enterprises transfer fixed assets unneeded and awaiting liquidation to corporations, state-owned general companies, the parent company, other independent state-owned companies, record:

Dr 411 - owner‘s capital

Dr 214 - Depreciation of fixed assets

Cr 211 - Tangible fixed assets.

c) Accounting for transfer of assets being the welfare projects

For assets being welfare projects invested by the State capital, if equitization enterprises continue to use them for business purposes, accountants shall record a follows:

Dr 466 - Funds setting up fixed assets

Cr 411 - owner‘s capital.

d) Accounting for settlement of loan liabilities before changing into joint stock companies: Before changing into joint stock companies, equitization enterprises must settle loan payable, depending on the loan and settlement decision:

- For liabilities which is not paid but is accounted as increase in state capital, recorded:

Dr 331, 338…

Cr 4111- Contributions from owners

- For liabilities which must be paid in cash, assets, recorded:

Dr 331, 338…

Dr 214 - Depreciation of fixed assets (part of accumulated depreciation of fixed assets used to pay debt)

Cr 111, 112, 152, 153, 155, 156, 211, 213 ...

The difference between the book value and the remaining value of the assets used to pay debt and the book value of the liabilities settled under decision of the competent authority.

dd) Accounting for settlement of provisions before enterprises changed into joint-stock companies: Provisions after being used to offset losses, their remaining shall be accounted as increase in state capital, record:

Dr 229, 352

Cr 411 - owner‘s capital.

e) Accounting for settlement of balance of exchange differences (if any)

- If gain on forex is recorded an increase in state capital, record:

Dr 413 - exchange differences

Cr 411 - owner‘s capital .

- If loss on forex is recorded a decrease in state capital, record:

Dr 411 - owner‘s capital

Cr 413 - exchange differences

Where the competent authority has another decision, the profits and losses of exchange differences which are recorded in account 413 shall be settled in accordance with the decision of the competent authority.

g) Accounting for settlement of long-term investment capital in other enterprises

- In case equitized enterprises inherited long-term investment capital in other enterprises, they must revalue long-term investment capital at the time of transfer in accordance with the law.

- In case equitizated enterprises do not inherit the long-term investments in other enterprises and transfer to other state enterprises as partners, based on transfer note, record:

Dr 411 - Owner‘s capital

Cr 222, 228…

h) Accounting for difference between the actual value and the book value of the State capital: the difference of state capital between the actual value and value recorded on accounting books shall be accounted for as business advantage of enterprises, recorded a follows:

Dr 242 - Prepaid expenses

Cr 411 - owner‘s capital.

i) Accounting for the difference of prepaid land rents: If the unit has paid land rents in lump-sum for the entire lease term or pay in advance the land rent for many years before July 07, 2004 (the date the Law on Land takes effect), there is a difference in increase due to re-determining the unit price of land rent at the time of valuation for the remaining period of the lease contract or the remaining time which is paid to rent land, accountants record a follows:

- In case prepaid land rent is qualified for being recorded an intangible fixed assets, the difference in increase shall be recorded:

Dr 213 - intangible fixed assets

Cr 411 - owner‘s capital.

- In case prepaid land rent is not qualified for being recorded an intangible fixed assets, the difference in increase shall be recorded:

Dr 242 - Prepaid expenses

Cr 411 - owner‘s capital.

k) Accounting for transfer of funds, fund of owner‘s equity to state capital in enterprises at the time of official change into joint-stock companies:

At the time enterprises are officially transformed into joint stock companies, accountants shall transfer the entire credit balance in development investment funds, other funds under the owner‘s equity, undistributed post-tax profits, fundamental capital investment capital, differences upon asset revaluation and exchange differences to owner‘s capital, record:

Dr 412, 413, 414, 418, 421, 441

Cr 411- owner‘s capital.

l) Accounting for sum received from equitization

- When receiving money from the sale of shares of state capital in enterprises, record:

Dr 111, 112…

Cr 3385 - Payable on equitization.

- When receiving money from the issuance of additional shares to increase operating capital, record:

Dr 111,112 (issue price)

Dr 4112 - Share premium (the difference between the issue prices less than face value of shares)

Cr 4111 - Contributions from owners (face value)

Cr 4112 - Share premium (the difference between the issue prices higher than face value of shares)

m) Handing over of assets, capital to joint-stock company

- In case of equitization of independent enterprises: In case of equitization of independent enterprises, accountants carry out handover procedures in accordance with the current regulations on transfer of assets, liabilities and capital of joint-stock company. All accounting records, accounting books and financial statements of equitized enterprises under storage shall be transferred to the joint stock company to continue storage.

- In case of equitization of dependent cost-accounting units of independent state-owned companies, corporations, general companies, parent companies, member companies: When transferring assets, liabilities and capital of joint-stock companies, based on asset transfer note, detailed appendices in transferring asset to the joint-stock companies and related documents, accounting books, accountants shall record as decrease in value of assets transferred to joint-stock companies, record;

Dr 336, 411

Dr 214 - depreciation of fixed assets (depreciated parts)

Dr 331, 335, 336, 338, 341 ...

Cr 111,112,121,131,152,153,154,155,156,211,213,221,222 , ...

n) Accounting in joint-stock company transformed from 100%-state-owned enterprises.

- Establishing new accounting books: Upon receipt of assets, liabilities, capital and enclosed documents, joint-stock companies must establish new accounting books (including general accounting books and detailed accounting books) to record the value of assets and capital transferred.

- Accounting for receipt of transfer of assets, liabilities and capital, in joint-stock companies: Upon receipt of the transfer of assets, liabilities and capital, based on the records, transfer note, accountants record:

Dr 111,112,121,131,138,141,152,153,154,155,156,157,211,221 ...

Cr 331, 333, 334, 335, 338, 341, ...

Cr 411 - owner‘s capital .

- Accounting in enterprises having privatized subordinate units

Accounting at the parent company of corporation having equitized subsidiary companies: When a member of corporation is equitized, the parent company shall base on the value of the state capital sold outside to record a decrease in value of investments and decrease in owner‘s capital, record:

Dr 411 - owner‘s capital

Cr 221 – Investment in subsidiary companies

Accounting in enterprises having subordinate units without legal status to be privatized: When subordinate units of Corporation, company are equitized, the Corporation, the company shall base on the value of state capital sold outside to record a decrease in operating capital subordinate units, record:

Dr 411 - owner‘s capital

Cr 1361 – Operating capital in subordinate units.

Source: Circular 200