Principles of preparation and presentation of financial statements of enterprises not meeting assumption of continuous operation
1. When preparing and presenting financial statements, enterprises must consider the assumption of continuous operation. Enterprises shall be considered as discontinuous operation if at the expiry of operation, they do not have applications for extension their operation, schedule of termination of operations (specific documents submitted to the competent agencies) or they are requested for dissolution, bankruptcy or termination of operations within 12 months from the date of the financial statements by competent agencies. For enterprises with ordinary trading and production cycle for more than 12 months, it shall be within a production cycle of ordinary trading and production.
2. In following cases, units are still considered as continuous operation:
- Equitization of a state-owned enterprise to a joint-stock company. The financial settlement upon equitization is a special case, in spite of revaluation of enterprises, revaluation of assets and liabilities, enterprises essentially maintain their production and trading as usual;
- Transformation of enterprise ownership, eg. a limited company is transformed into a joint stock company or vice versa;
- Transformation of a unit with the legal status of independent cost-accounting into a unit without legal status of dependent cost-accounting or vice versa (for example, a subsidiary is transformed into a branch or vice versa)
3. In case of not meeting assumption of continuous operation, enterprises still must present fully financial statements and record clearly:
- The Balance Sheet applied to enterprises not meeting the assumption of continuous operation -Form B01 / CDHDD - DNKLT presented in a separate form;
- Income statement applied to enterprises not meeting the assumption of continuous operation - Form B02 / CDHDD - DNKLT presented in a general form similar to enterprises with normal operations;
- cash flow statement applied to enterprises not meeting the assumption of continuous operation - Form B03 / CDHDD - DNKLT presented in a general form similar to enterprises with normal operations;
- Note to the financial statements applied to enterprises not meeting the assumption of continuous operation -Form B09 / CDHDD - DNKLT presented in a separate form;
4. If the assumption of continuous operation is no longer appropriate at the time of reporting, enterprises must reclassify long-term assets and long-term liabilities into short-term assets and short- term liabilities.
5. If the assumption of continuous operation is no longer appropriate at the time of reporting, enterprises must re-evaluate the entire assets and liabilities except where third parties have a right to inherit asset or the obligation to the liabilities according to the book value. Enterprises must record in the accounting books at re-evaluated prices prior to the Balance Sheet.
Assets and liabilities shall not be revaluated if a third party has the right to inherit assets or obligations to liabilities in some specific cases as follows:
a) In case a unit is dissolved to acquire into another unit, if the acquired unit commits to inherit all rights and obligations of the dissolved unit under book value;
b) In case a unit is dissolved to divide into another unit, if the unit after division commits to inherit all rights and obligations of the dissolved unit under book value;
c) Any specific asset committed, guaranteed to recovery for dissolved unit under the book value by another party and the recovery takes place before the unit officially terminates its operation;
d) Each specific liability committed, guaranteed to pay for the dissolved unit by a third party and the dissolved unit must only pay for such third party under book value books;
Re-evaluation is carried out for each type of asset and liability on the principle:
(a) For assets;
- Inventory, long-term work in progress, long-term equipment, materials, spare parts are evaluated lower than the cost price and net realizable value at the time of reports;
- Tangible fixed assets, intangible fixed assets, investment real property are evaluated lower than the net book value and the recoverable value at the time of reporting (liquidation price minuses the estimated liquidation expenses). Finance lease fixed assets, if there is a term requiring to
repurchase, shall be revalued similarly to fixed assets of enterprises, if they are returned to the lessor, shall be revalued according to the finance lease liabilities payable to the lessor;
- The cost of fundamental construction in progress is valued lower between book value and the recoverable value at the time of reporting (liquidation price minuses the estimated liquidation expenses);
- Trading securities are evaluated according to the fair values. The fair value of listed securities or securities on UPCOM is defined as the closing price of the session at the reporting date (or the preceding session if the market does work on the reporting date);
- Investments in subsidiaries, joint ventures, associates and other units are recorded at the lower price of book value and recoverable value at the time of reporting (selling price minuses the estimated selling costs);
- Investments held to maturity, receivables are valued according to the actual recoverable amount.
b) For liabilities: In case there is agreement between the parties in writing of the amount payable, revaluation shall be depended on the agreed amount. If there is no specific written agreement, it shall be as follows:
- Debts payable in cash are revalued at a higher price between the book value of debts payable and debts paid before the deadline as stipulated by the contract;
- Debts payable in financial assets are revalued at a higher price between the book value of debts payable and the fair value of such financial assets at the time of the report;
- Debts payable in inventories are revalued at a higher price between the book value of liabilities and the purchase price (are plus directly related costs) or production cost of inventories at the same time of the report;
- Debts payable in fixed assets are revalued at a higher price between the book value of liabilities and the purchase price (are plus directly related costs) or the net book value of fixed assets at the time of the report;
c) Accounts derived from foreign currencies are revalued at the actual exchange rate at the time of reporting as usual.
6. Accounting method of some assets when enterprises do not meet the assumption of continuous operation:
a) Setting up provision or evaluating asset loss is recorded a decrease directly in the book value of assets, provision in account 229 - "Provision for asset losses" shall not be made;
b) The calculation of depreciation or recording losses of fixed assets, investment real property is recorded a decrease in the book value of assets, account 214 shall not be used to record accumulated depreciation .
7. When assumption of continuous operation is no longer appropriate, enterprises must handle several following financial problems:
- Advancing costs to determine income for the expected losses arising in the future if the possibility of arising loss is probable and the value of the losses are estimated reliably; Recording current obligations for the liabilities, including cases of insufficient documents (such as volume acceptance records of contractors ..) which are surely paid;
- For differences upon accumulated asset revaluation of owner‘s equity, after handling tangible, intangible fixed assets, investment real property, the rest is transferred to other income (if profit) or other expenses (if loss);
- For exchange differences recorded a accumulation in the balance sheet (such as exchange differences arising from the conversion of financial statements), enterprises shall transfer all to financial income (if profit) or financial expense (if loss);
- Unallocated prepaid expenses such as goodwill arising from business acquisition which does not lead to the parent-subsidiary relationship, goodwill in equitization, tools and instruments delivered for use, cost of enterprise establishment, cost of commence stage ... are all recorded a decrease to include in cost during the period. Prepaid expenses related to the lease of assets, prepaying interest are calculated and allocated to match the remaining actual prepaid time until official termination;
- The parent company stopped recording goodwill in the consolidated financial statements, the unallocated goodwill is included in enterprise management expenses;
- The differences of profit or loss upon revaluation of assets and liabilities after offsetting the provision set up (if any) are recorded in financial income, other income or financial expense and other expenses, depending on the specific items similar to recording of operating enterprises.
8. In case the assumption of continuous operation is no longer appropriate at the time of the report, enterprises must explain in detail the ability to pay cash and liabilities, owner‘s equity for shareholders and explain the reasons for not being comparable between information of reporting period and information of comparison period, namely:
- The recoverable amount from the liquidation or sale of assets, recovery of liabilities;
- Ability to pay liabilities in order of priority, such as the ability to pay to the State budget, workers, loan, providers;
- Ability to pay to owners, for joint-stock companies, the ability of how much that each stock will receive shall be announced clearly;
- The time for payment of liabilities and owner‘s equity.
- Reasons for incomparable information of reporting period and comparative period: Due to previous period, enterprises present financial statements in accordance with the principle of continuous operating enterprises; in reporting periods when enterprises are going to dissolve, bankrupt or terminate their operations under decisions of competent agencies (specify the name of the agency, the number of the decision) or the Board of Directors have plans under the documents( number, date) financial statements shall be presented in accordance with other principles.
Source: Circular 200, Article 106
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