Account 121 - Trading securities

1. Rules for accounting
2. a) This account is used to record the sales, purchases and payments of securities as prescribed which are held for business purposes (including over-12-month matured securities which are traded for profits). Trading securities include:

- Shares, bonds listed on securities market;

- Securities and other financial instruments.

This account is not used to record the held to maturity investment, such as: loans under agreements, cash in bank, bonds, commercial papers, treasury bills, exchange bills,…held to maturity date.

1. b) Trading securities must be recorded in the ledger according to original prices: buying prices plus (+) buying costs (if any) (brokerage, transactions, information provision, taxes, bank's fees and charges. The basis price of trading securities shall be determined according to fair value of payments at the time in which the transaction takes place the trading securities shall be recorded when the investors acquire ownership, in particular:

- Listed securities are recorded at the time of matching (T+0);

- Unlisted securities are recorded at the time in which the ownership is acquired as prescribed in regulations of law.

1. c) At the end of the fiscal year, if the market prices of trading securities devalue against their original prices, the provisions for devaluation shall be made.
2. d) The enterprise must record incomes from investment in trading securities sufficiently and promptly. The dividends paid in the period before investment date shall be recorded as a decrease in value of investment. When the investor receives additional shares without paying money to joint-stock companies using share premium, the funds belong to owners‘ equity and unallocated post-tax profits (dividends are allocated by shares) to issue additional shares, the investor only observes the quantity of additional shares according to the presentation of financial statement, not records the received share value, not records financial income and not records the investment value in joint-stock companies.

With regard to enterprises whose charter capital is wholly held by the state, the accounting for dividends allocated by shares shall comply with regulations on wholly-state-owned enterprises.

đ) Before any share is exchanged, its value must be determined according to fair value on the exchanging date. The determination of fair value of shares shall comply with regulations below:

- Regarding shares of listed companies, fair value of their shares are closing prices listed on the securities market on the exchange date. In case the securities market closes transaction on the exchange date, the fair value of shares is closing prices of the session preceding the exchange date.

- Regarding unlisted shares permitted to transact on the UPCOM, the fair value of shares are closing prices of UPCOM on the exchange date. In case the UPCOM closes transactions on the exchange date, the fair value of shares is closing prices of the session preceding the exchange date.

- With regard to other unlisted shares, the fair value of shares is prices dealt by contracting parties or book value at the exchange date.

1. e) The accountant must keep records of every type of trading securities holding by the enterprise in details (according to every security; every entity, face value, actual buying price or every type of currency used for investment, etc).
2. g) When liquidating or transferring trading securities (according to every type of security), the cost price shall be determined according to mobile weighted average method (weighted average for every purchase).

2. Structure and contents of account 121 – Trading securities

Debit: Trading security buying-value.

Credit: trading security selling-value.

Debit balance: Trading security value at the reporting time.

Account 121 - Trading securities, comprises 3 sub-accounts:

- Account 1211 – Shares: recording the purchases or sales of shares for profits.

- Account 1212 – Bonds: recording the purchases, sales and payments of bonds for profits.

- Account 1218 – Securities and other financial instruments: recording the purchases or sales of securities and other financial instruments as prescribed for profits, such as fund certificates, stock options, warrants, call options, put options, futures contracts, commercial papers, etc. This account also records the purchases or sales of other valuable papers including commercial papers or bill of exchange for profits.

3. Accounting methods for several major transactions:
4. a) When buying trading securities, according to buying costs (buying prices plus (+) costs of brokerage, transaction, information, bank fees or charges, etc), the following accounts shall be recorded:

Dr 121 – Trading securities

Cr 111, 112, 331

Cr 141 - Advance

Cr 244 - Pledge, mortgage, deposits.

1. b) When collecting interests of bonds and other securities periodically:

- If the received interests are used for purchases of additional bonds or treasury bills, the following accounts shall be recorded:

Dr 121 – Trading securities

Cr 515 – Financial income.

- When receiving interests in cash, the following accounts shall be recorded:

Dr 111, 112, 138, etc.

Cr 515 – Financial income.

- When receive investment interests including the investment interests accrued before re-buy that investment, that interests must be allocated. Only the interests of periods in which the enterprise buys that investment shall be recorded to financial income; the interests accrued before the enterprise re-buys that investments shall be recorded to as a decrease in value of such investment as follows:

Dr 111, 112, 138, etc (total collected interests)

Cr 121 – Trading securities (interests accrued before the enterprise re-buys the investment)

Cr 515 – Financial income (interests after the enterprise buys the investment).

1. c) Accounting for dividends or divided profits:

- If the dividends are received after the investment date, the following accounts shall be recorded:

Dr 111, 112, etc.

Dr 138 – Others receivable (deferred payments)

Cr 515 – Financial income.

- If the dividends are received before the investment date, the following accounts shall be recorded:

Dr 111, 112, 138, etc (total collected interests)

Cr 121 – Trading securities (interests accrued before the enterprise re-buys the investment)

- When receiving dividends or profits used for recording of increase in state capital, they shall not be recorded to financial income, but they shall be recorded to devaluation of financial investment, the following accounts shall be recorded:

Dr 112, 138

Cr 121 – Trading securities.

1. d) When transferring trading securities, according to securities sale prices:

- If the profits generate, the following accounts shall be recorded:

Dr 111, 112, 131, etc (total payment price)

Cr 121 - Trading securities (weight average cost price)

Cr 515 – Financial income. (Positive difference between the buying price and the cost price).

- If the losses generate, the following accounts shall be recorded:

Dr 111, 112, 131, (total payment prices)

Dr 635 – Financial income. (negative difference between the buying price and the cost price).

Cr 121 - Trading securities (weight average cost price)

- Expenditures on security sales, the following accounts shall be recorded:

Dr 635 - Financial expenses

Cr 111, 112, 331, etc.

đ) When withdrawing or paying matured trading securities, the following accounts shall be recorded:

Dr 111, 112, 131

Cr 121 – Trading securities.

Cr 515 – Financial income.

1. e) If the enterprise transfers the trading securities in the form of share exchange, the enterprise must determine the fair value of shares received at the exchange time. The difference (if any) between fair value of shares received and book value of shares used for exchange shall be recorded to financial income (in case of profits) or financial expenses (in case of losses).

- If the share exchange generates profits, the following accounts shall be recorded:

Dr 121 – Trading securities (fair value of shares received)

Cr 121 - Trading securities (book value of shares used for exchange according to weight average method)

Cr 515 - Financial income (positive difference between the fair value of shares received and the book value of shares used for exchange)

- If the share exchange generates losses, the following accounts shall be recorded:

Dr 121 – Trading securities (fair value of shares received)

Dr 635 - Financial income (negative difference between the fair value of shares received and the book value of shares used for exchange)

Cr 121 - Trading securities (book value of shares used for exchange according to weight average method)

1. g) When re-evaluating balance of securities in conformity with definition of accounts derived from foreign currencies (bonds, commercial papers in foreign currencies, etc).

- If the profits generate, the following accounts shall be recorded:

Dr 121 – Trading securities (1212, 1218)

Cr 413 - Exchange rate differences.

- If the losses generate, the following accounts shall be recorded:

Dr 413 - Exchange rate differences.

Cr 121 – Trading securities (1212, 1218).