Account 128 – Held to maturity investments

1. Rules for accounting

a) This account is used to record current amounts and increases and decreases in held to maturity investments (other than trading securities), such as: term deposits (including treasury bills, promissory notes), bonds, preference shares which the issuer is required to re-buy them in a certain time in the future and held to maturity loans to earn profits periodically and other held to maturity investments.

This account shall not record bonds and debt securities held for sales (recorded to account 121 – Trading securities)

b) The accountant must keep records of every held to maturity investment in details according to every term, entity, type of currency or quantity, etc. When preparing financial statements, the accountant shall base on remaining term (under 12 months or 12 months and longer from the reporting time) to record those to short-term accounts or long-term accounts.

c) The enterprise must record deposit interests, loan interests, profits or losses on liquidation or transfer of held to maturity investments to financial income sufficiently and promptly.

d) With regard to held to maturity investments, if it fails to make provisions for doubtful debts as prescribed, the accountant must evaluate the recovery. If it is evident that a part or all of investment is unable to recover, the accountant shall record the losses to financial expenses within the fiscal year. In case it is unreliable to determine the losses, the accountant is entitled not to record them to revaluation of investment, but the recovery of investment must be reported on the financial statements.

dd) When the financial statement is prepared, the accountant must re-evaluate investment classified as accounts derived from foreign currencies according to actual exchange rates at the end of the accounting period:

- Exchange rates applying to deposits in foreign currencies are buying-exchange rates of the bank where the enterprise opens its deposit account;

- Exchange rates applying to other held to maturity investments are buying-exchange rates of the bank where the enterprise regularly enters into transactions (chosen by the enterprise).

2. Structure and contents of account 128 – Held to maturity investments

Debit:

Value of held to maturity investments increases.

Credit:

Value of held to maturity investments decreases.

Debit balance:

Value of current held to maturity investments at the reporting time.

Account 128 – Held to maturity investments comprises 3 sub-accounts:

- Account 1281 - Term deposits: recording the increases, decreases and balance of term deposits.

- Account 1282 - Bonds: recording the increases, decreases and balance of bonds which it intends to hold till maturity.

- Account 1283 – Loans: recording the increases, decreases and balance of loans under agreements which are not transacted on the market similarly to securities. According to every contract, loans under agreements may be recovered fully on the maturity date or recovered periodically.

- Account 1288 – Other held to maturity investments: recording the increases, decreases and balance of other held to maturity investments (other than bank deposits, bonds and loans), such as preference shares which the issuer is required to re-buy them in a certain time in the future, commercial papers.

3. Accounting methods for several major transactions:

3.1. When making term deposits, granting loans, buying held to maturity investments, the following accounts shall be recorded:

Dr 128 – Held to maturity investments

Cr 111, 112.

3.2. When collecting deposit interests, bond interests or loan interests periodically, the following accounts shall be recorded:

Dr 138 - Other receivables (1388)

Cr 128 – Held to maturity investments (interest included in principal)

Cr 515 - Financial income.

3.3. When recovering held to maturity investments, the following accounts shall be recorded:

Dr 111, 112, 131, 152, 156, 211, etc (according to fair value)

Dr 635 - Financial expenses (in case of losses)

Cr 128 – Held to maturity investments (book value)

Cr 515 - Financial income (in case of profits).

3.4. When investing held to maturity investments in subsidiary companies, joint-venture companies, the following accounts shall be recorded:

Dr 221, 222 (according to fair value)

Dr 635 - Financial expenses (in case of losses)

Cr 128 – Held to maturity investments (book value)

Cr relevant accounts (if the additional investment is required)

Cr 515 - Financial income (in case of profits).

3.5. Accounting for transactions of held to maturity bonds:

a) Buying bonds and receiving interests in advance:

- When buying bonds and receiving interests in advance, the following accounts shall be recorded:

Dr 128 – Held to maturity investments (1282)

Cr 111, 112, etc (actual amounts of money)

Cr 3387 – Unearned revenues (interests received in advance).

- When calculating and transferring interests of tax period according to interests receivable periodically, the following accounts shall be recorded:

Dr 3387 - Unearned revenues

Cr 515 - Financial income.

- When recovering original prices of bonds on the maturity date, the following accounts shall be recorded:

Cr 111, 112, etc.

Cr 128 – Held to maturity investments (1282).

b) Buying bonds and receiving interests periodically:

- When buying bonds, the following accounts shall be recorded:

Dr 128 – Held to maturity investments (1282)

Cr 111, 112, etc.

- When receiving bond interests periodically, the following accounts shall be recorded:

Dr 111, 112, 138, etc.

Cr 515 - Financial income.

- When recovering original prices of bonds on the maturity date, the following accounts shall be recorded:

Cr 111, 112, etc.

Cr 128 – Held to maturity investments (1282).

c) Buying bonds and receiving deferred interests:

- When buying bonds, the following accounts shall be recorded:

Dr 128 – Held to maturity investments (1282)

Cr 111, 112, etc.

- When calculating interests and recording revenues according to the interests receivable periodically, the following accounts shall be recorded:

Dr 138 - Other receivables (1388)

Cr 515 - Financial income.

- When recovering principal and interests of bonds on the maturity date, the following accounts shall be recorded:

Cr 111, 112, etc.

Cr 128 – Held to maturity investments (1282).

Cr 138 - Other receivables (1388) (interests of previous tax period)

Cr 515 - Financial income (regarding interests on maturity date).

3.6. Accounting for losses due to failure of recovery of held to maturity investments which are not made provisions for doubtful debts;

If it is evident that a part or all of investment are unable to recover (the issuer is insolvent or goes into bankruptcy. If the losses are determined reliably, the negative difference between recoverable value and book value shall be recorded to financial expenses as follows:

Dr 635 - Financial expenses

Cr 128 – Held to maturity investments (1281, 1282, and 1288).

- After recording the losses, if it is evident that the losses are recoverable, the positive difference between recoverable value and book value shall be recorded to financial expenses as follows:

Dr 128 – Held to maturity investments (1281, 1282, and 1288).

Cr 635 - Financial expenses

3.7. When re-evaluating balance of held to maturity investments which are classified accounts derived from foreign currencies, the following accounts shall be recorded:

- In case of profits, the following accounts shall be recorded:

Dr 128 – Held to maturity investments

Cr 413 – Exchange rate differences.

- In case of losses, the following accounts shall be recorded:

Dr 413 – Exchange rate differences.

Cr 128 – Held to maturity investments.

Source: Circular 200