APPENDIX NO.03

VIETNAM PUBLIC ACCOUNTING STANDARD NO.12 INVENTORY (Attached to Decision No. 1676/QD-BTC dated September 01, 09 of the Ministry of Finance)

INTRODUCTION

Vietnam's public accounting standards system has been researched and developed by the Public Accounting Standards Board of the Ministry of Finance to ensure compliance with international accounting practices and conditions. reality of Vietnam. Vietnamese public accounting standards have the same standard symbols as the corresponding international public accounting standards.

Vietnam Public Accounting Standard (VPSAS) No. 12 "Inventory" Drafted based on International Public Accounting Standard (IPSAS) No "Inventory" and current regulations on Vietnam's financial and budgetary mechanism. Vietnam Public Accounting Standard No. 12 stipulates the contents consistent with the current legal regulations of Vietnam and the regulations that are expected to be amended and supplemented in the near future. Vietnam Public Accounting Standard No. 12 does not stipulate that the contents of International Public Accounting Standard No. 12 are not suitable for the long-term financial and budgetary mechanism, the addition of regulations will be made on the basis of according to the actual situation in each appropriate period.

International Public Accounting Standard No. 12, based on semi-circulation in 2003, was revised to be consistent with other international public accounting standards as of December 31, 12, by the Accounting Standards Board. International Public Accounting (IPSASB) promulgated.

Vietnam Public Accounting Standard No. 12 denotes the ordinal number of paragraphs compared to international public accounting standards. For comparison, the reference table of paragraph symbols of Vietnamese public accounting standards compared with the notation of international public accounting standards paragraphs is included with this standard. For matters related to other public accounting standards, Vietnam Public Accounting Standard No. 12 quoted by symbol and name of relevant Vietnamese public accounting standards has been promulgated. For standards that have not been issued, this standard only mentions the name of the standard or related content to be referenced, not the number of the relevant standard as in the international public accounting standard No. 12. Specific citation of the symbol and the standard name will be made after the relevant standards are issued.

By the time of promulgation of Vietnam Public Accounting Standard No. 12 (in 2021), relevant standards that have not been promulgated include:

VPSAS 12 – INVENTORY

The process of promulgating and updating Vietnamese public accounting standards No. 12(hereinafter referred to as the Standard)

The version of Vietnamese public accounting standards No. 12 was first issued under Decision No. 1676/QD-BTC dated September 01, 09 of the Minister of Finance.

This Standard takes effect from September 01, 09, and will be applied from September 2021, 01.

Commonly valid standards include:

– Vietnamese Public Accounting Standard No. 01: Presentation of financial statements;

– Vietnamese Public Accounting Standard No. 02: Statement of cash flows;

– Vietnam Public Accounting Standard No. 17: Real estate, plant and equipment;

– Vietnamese Public Accounting Standard No. 31: Intangible assets.

VPSAS 12 – INVENTORY

CONTENT

The text of Vietnamese Public Accounting Standard No. 12 “Inventories” is presented in paragraphs 1 to 46. All paragraphs are equal.

I. GENERAL PROVISIONS

Purpose

Limit

Define

Net realizable value

Inventory

II. SPECIFIED

Determining the value of inventory

Original cost of inventory

Purchase cost

Processing cost

Other costs

Cost of inventory of service providers

Cost of agricultural products harvested from biological assets

Techniques to determine cost of inventory

Pricing method

Net realizable value

Distributing goods for free or at nominal prices

Record the cost

Information presentation

Reference table of paragraphs of Vietnamese public accounting standards compared with paragraphs of international public accounting standards

I. GENERAL PROVISIONS

Purpose

1. The purpose of this standard is to prescribe the inventory accounting method. The fundamental problem in inventory accounting is that the cost of the costs that make up the inventory is recognized as an asset and continues to be recognized as an asset until the related revenue is recognised. take. This Standard provides guidance on determining the cost of inventories and subsequent recognition as an expense, including the reduction of inventories to net realizable value. . This Standard also provides guidance on the inventory valuation methods used to determine the value of inventories.

Limit

2. An entity that prepares and presents financial statements on the accrual basis of accounting applies this standard to account for all types of inventories, except:

(a) Costs in progress arising from construction contracts, including directly related service contracts;

(b) Financial Instruments;

(c) Biological assets associated with agricultural operations and agricultural products at the time of harvest; and

(d) Cost in progress of services provided free of charge or at nominal rates.

3. This Standard does not apply to the valuation of inventories held by:

(a) A producer of agricultural and forestry products, agricultural postharvest products, minerals and mineral products, the value of which is measured at net realizable value. in accordance with the specific regulations of these industries. When these inventories are measured at net realizable value, the changes in net realizable value are recognized in the surplus or deficit in the reporting period in which the change occurs; and

(b) Merchandise broker-trader determines the value of inventories at fair value less cost of sales. When these inventories are measured at fair value less cost of goods sold, changes in fair value less costs of goods sold are recognized in the surplus or deficit in the reporting period in which they are incurred. change.

4. Inventories referred to in paragraph 3(a) are measured at net realizable value at certain stages of production. For example, when the agricultural crop is harvested or when minerals are mined and the sale is secured by a forward contract or government offtake; or when an active market exists and there is virtually no risk of not selling. These types of inventories are not covered by the determination of this standard.

5. Trading units – commodity brokers are units that buy or sell goods for other units or for themselves. The inventory referred to in paragraph 3(b) is essentially purchased with the intention of reselling it in the near future and generating a surplus from price movements or the trading unit's profit margin. commodity world. Inventories are measured at fair value less costs to sell, which is not covered by this standard's determination of value.

Define

6. The terms used in this standard have the following meanings:

Current replacement costs are the costs incurred by the entity to acquire the asset at the reporting date.

Net realizable value is the estimated selling price under normal operating conditions less the estimated costs to complete the products and the estimated costs necessary to sell, exchange or distribute them.

Inventories are assets:

(a) Has the form of materials or tools, consumables in the production process;

(b) Take the form of materials or tools, consumable or distributed in the course of providing a service;

(c) Holds for sale or distribution during a normal operating cycle; or

(d) In production for sale or distribution.

Terms defined in other Vietnamese Public Accounting Standards as used in this Standard have the same meanings as in those Standards.

Net realizable value

7. Net realizable value is the net amount that an entity would expect to receive from the sale of inventory under normal operating conditions. Fair value reflects the value for which a similar inventory could be exchanged between a seller and a buyer who was reasonably knowledgeable and willing to make an exchange. The net realizable value is the value that is specific to the entity, while the fair value does not. The net realizable value of inventories may not equal fair value less costs to sell.

Inventory

8. Inventories include goods that are bought and held for resale, such as goods acquired and held for sale by the entity, real estate held for sale. Inventories also include finished or work-in-progress products that the entity is manufacturing. Inventories also include raw materials and tools and instruments prepared for use in the production process; goods purchased or produced by an entity for distribution free of charge or at nominal prices to another entity. In some public sector entities, inventory is more concerned with the provision of services than goods bought and held for resale or manufactured goods for sale. In the case of an entity providing a service, as referred to in paragraph 24, inventory includes the cost of performing the service for which the entity has not yet recognized revenue related to the provision of this service.

9. Public sector inventories may include:

(a) Stockpiling of goods;

(b) Curing materials;

(c) Spare parts for plant and equipment, other than those specified in the Property, Plant and Equipment Standards;

(d) Strategic stockpiles (e.g. energy, food, rescue equipment;

(e) Unissued Vault;

(f) Goods for supply in the postal service held for sale (for example, postage stamps);

(g) Work in progress, including:

(i) Documentation of training courses;

(ii) Customer services, when they are provided at par;

(h) Real estate held for sale.

10. Since the government has the power to print and issue currency and postage stamps, these assets are recognized as inventory for the purposes of this standard. These inventories are not reported at face value but are measured in accordance with paragraph 12 of this standard, i.e. at the cost of printing or minting them.

11. When the Government maintains strategic reserves for many types of goods, such as energy reserves (gasoline, oil), food reserves (rice) for use in emergency situations or in other situations ( such as natural disaster or other emergency civilian relief), these strategic inventories are recognized and treated as inventories for the purposes of this standard.

II. SPECIFIED

Determining the value of inventory

12. Inventories are measured at the lower of cost and net realizable value, except for the cases specified in paragraphs 13 or 14 of this standard.

13. When inventory is acquired through a non-exchange transaction, the value of the inventory is measured at its fair value at the date of receipt.

14. Inventories must be measured at the lower of cost and current replacement costs when inventories are held to:

(a) Distributed free of charge or at a nominal price; or

(b) Consumption in the production of a good that is freely distributed or at a nominal price.

Original cost of inventory

15. Cost of inventory includes all costs of purchase, processing and other costs incurred to bring the inventory in its present location and condition.

Purchase cost

16. The cost of purchasing inventory includes the purchase price, import duties and other taxes (except taxes that are subsequently refunded by the state budget), transportation, handling and other related costs. directly related to obtaining finished products, raw materials, and tools. Trade discounts, rebates and other similar items are deducted from the purchase cost.

Processing cost

17. Processing costs to convert unfinished inventories into finished goods inventories are incurred at units engaged in production activities. Inventory processing costs include costs directly related to each unit of product such as direct labor costs. Processing costs include both the systematic allocation of fixed and variable manufacturing overhead incurred during the processing of work-in-process inventory into finished goods inventory. Fixed manufacturing overheads are relatively stable indirect production costs that do not depend on production scale (such as depreciation and maintenance costs for plant and equipment) and administrative costs. Variable manufacturing overhead are indirect production costs that vary directly or nearly directly with the scale of production, such as indirect labor and indirect material costs.

18. The allocation of fixed production overheads to processing costs is based on the normal capacity of machinery and equipment. Normal capacity is the average amount of product expected to be produced over a number of periods or seasons under normal production conditions, taking into account the loss of capacity due to planned maintenance. . Actual production may be used as an allocation criterion if it approximates normal capacity. Fixed manufacturing overheads allocated to each product unit will not increase with less production or cessation of production. Manufacturing overheads that are not allocated are recognized as an expense in the period when they are incurred. In periods where actual production is higher than normal, fixed manufacturing overhead is allocated to each unit of product according to actual costs incurred, so inventories are not valued at high value. than actual costs. Variable manufacturing overhead is allotted to each product unit based on actual production levels of machinery and equipment.

19. A production process can produce many products at the same time. For example, in the case of the production of products that combine or the process produces a major product and a by-product. When processing costs for each product type cannot be segregated separately, they will be allocated to products on a reasonable and consistent basis. Allocation can be based on the respective selling price of each product at a stage in the production process where the products are individually identifiable or when the production is finished. Most of the by-products are not material in nature. In this case, the by-products are measured at net realizable value, which is subtracted from the cost of the main product. Therefore, the carrying value of the primary product will not be significantly different from its processing costs.

Other costs

20. Other costs are included in the cost of the inventory only to the extent that those costs are incurred to bring the inventory to its present location and condition. For example, cost of inventory may include overhead costs outside of manufacturing or the cost of designing products for specific customers.

21. Examples of costs that are not included in the cost of inventories and are recognized as expenses in the period in which they are incurred are:

(a) Cost of raw materials, labor or other production costs incurred above normal;

(b) Storage costs, unless they are necessary in the production process prior to a subsequent stage of production;

(c) Administration costs unrelated to bringing the inventory to its present location and condition; and

(d) Selling expenses.

22. In some cases, borrowing costs are included in the cost of inventories in accordance with the provisions of Vietnamese Public Accounting Standards on borrowing costs.

23. The unit can purchase inventory by deferred payment method. When a purchase includes a financial element, that financial element (for example, the difference between the purchase price on the spot payment method and the purchase price on the deferred payment method) is recognized as interest expense. loan in the deferred payment period.

Cost of inventory of service providers

24. In the case of service providers with inventories (other than those mentioned in paragraph 2(d)), the value of the inventories is determined at the cost of producing them. These costs basically include labor costs and other personnel costs directly related to providing the service, including supervisory staff costs and other overhead costs. Labor costs not related to service provision are not included in the cost of inventory. Labor and other costs related to sales and administrative staff expenses are not included in the cost of inventories but are recognized as expenses in the period when they are incurred. The cost of the service provider's inventory does not include residual profits or other unrelated overheads that are normally included in the price of the service.

Cost of agricultural products harvested from biological assets

25. Inventories including agricultural produce that an entity harvests from biological assets are initially recognized at fair value less costs to sell at the time of harvest. This is the cost of inventories at harvest for the application of this standard.

Techniques to determine cost of inventory

26. Inventory costing techniques, such as the standard cost method or the retail method, may be used for convenience if the results are approximate to cost. The standard costing method takes into account the normal consumption of materials, tools, labor, efficiency and capacity used in machinery and equipment. These factors are periodically reviewed and, as necessary, adjusted to suit current conditions.

27. Inventories may be transferred to the entity through a non-exchange transaction. For example, an international relief organization might provide medical supplies to a public hospital during disaster recovery. In this case, the cost of the inventory is the fair value at the time the inventory is received.

Pricing method

28. Cost of inventories (which are generally not interchangeable) and goods or services produced, segregated for specific projects, are determined using a method the nominal value of each object.

29. Nominal price is the specific price attached to certain types of inventory. This method is suitable for those types of inventory that are segregated for a particular project, regardless of whether the inventory is produced or purchased. However, the spot-price method is not suitable for pricing large quantities of inventory that are normally interchangeable. In this case, the method of selecting the items of inventory that is outstanding at the end of the period can be used to determine the expected effects on the surplus or deficit for the period.

30. When applying paragraph 29, an entity must use the same valuation method for all inventories of the same nature and intended use for the entity. For inventories that are different in nature or have different uses (e.g. the same goods but used in different parts), a different valuation method may be applied. The geographical location of inventories is not sufficient to justify the use of other costing methods.

31. Cost of inventories, other than the method referred to in paragraph 28, is determined by the first-in, first-out method or the weighted average method. An entity must use the same valuation method for all inventories of the same nature and intended use for the entity. For inventories of different natures or uses, different valuation methods may be applied.

32. For example, inventory used for a division may have a different use than inventory of the same type used for another division within the same entity. However, differences in the geographical location of inventories are not sufficient in nature to justify the application of different pricing methods.

33. The first-in, first-out (FIFO) method assumes that inventory purchased first is sold first, so the inventory remaining at the end of the period is the inventory purchased or produced at that time. nearest point. According to the weighted average method, the ex-warehousing price of each type is determined based on the weighted average prices of similar types at the beginning of the period and the prices of the types purchased or produced during the period. The average can be calculated for the entire period or after each entry, depending on the situation of the entity.

Net realizable value

34. The original cost of the inventory may not be recoverable in the event that the inventory is damaged, partially or completely obsolete, or the selling price is reduced. The cost of inventory may also be non-recoverable in the event that the estimated costs to complete and the estimated costs to sell, exchange or distribute increase. Depreciation of inventories to net realizable value is consistent with the principle that assets are not recognized to a greater extent than future economic benefits or potential services that the entity expects can be realized. obtained from the sale, exchange, distribution or use of that asset.

35. Inventories are reduced to net realizable value normally carried on a product-by-type basis. However, in some cases, an entity can make a reduction for a group of similar or related goods. This case is applied to inventories with the same purpose and end use function; cannot be valued separately from other goods in the same product line. Depreciation of inventory on the basis that one type of inventory is inappropriate, for example, finished goods, or all inventory of a particular process or geographic location. Service providers often aggregate costs for each service with a separate selling price, each of which is considered a separate item.

36. When estimating net realizable value, an entity must take into account the purpose for which the inventory is held. For example, the net realizable value of an inventory held for contract sale or service provision should be based on the sales price specified in the contract. If the amount of inventory held is greater than the amount signed under the contract, the net realizable value of the difference must be based on the estimated normal selling price. Guidance on how to handle contingencies or contingencies, such as inventory arising from signed sales contracts that exceed the amount of inventory held and the number of items in purchase contracts signed is presented in Vietnamese Public Accounting Standards on provisions, contingent liabilities and contingent assets.

37. Materials and tools held for use in the manufacture of products may not be depreciated below cost if the products they contribute to are to be sold, exchanged or distributed by or higher than the cost of that product. However, when there is a decrease in the price of raw materials that results in the cost of the finished product being higher than the net realizable value, these materials must be reduced to their net realizable value. can be done. In this case, using the current replacement cost of the material may be the best method for determining the net realizable value.

38. The entity must reassess net realizable value in each subsequent accounting period. When the previous causes for inventories to be reduced below cost no longer exist or when there is strong evidence that the net realizable value has increased as a result of changes in business conditions. In fact, the previous write-down must be reversed (the maximum amount to be reversed is the original write-down) to ensure that the new carrying amount is the lower of cost and net realizable value. has been adjusted. For example, in the previous accounting period, inventory is written down to net realizable value due to a decrease in its selling price. holding.

Free delivery or at nominal price

39. A public sector entity may hold an inventory of potential future economic benefits or services that are not directly related to its ability to generate net cash inflows. These types of inventories may arise when the Government decides to distribute certain goods free of charge or to distribute them at nominal prices. In these cases, the future economic benefits or potential services of the inventories for financial reporting purposes are reflected in the amounts required by the entity to obtain the economic benefits or services. potentially necessary for the achievement of the entity's objectives. When a potential economic benefit or service cannot be purchased in the market, an estimate should be made of the replacement cost. If the purpose of holding the inventory changes, the inventory is valued in accordance with paragraph 12.

Record the cost

40. When inventory is sold, exchanged or distributed, the carrying amount of the inventory is recognized as an expense in the period in which the related revenue is recognised. If no related revenue is generated, costs are recognized when the goods are delivered or when the related services are provided. The write-down of inventory and any loss of inventory is recognized as an expense in the period when the impairment or loss is incurred. The reversal of inventory write-downs will be recognized as a deduction from expenses in the period when the reversal is incurred.

41. For a service provider, the time when inventory is recognized as an expense usually occurs when the service has been provided or an invoice for the service charge has been issued.

42. Some types of inventory may be allocated to other assets, such as inventory used as part of real estate, plant, and homemade equipment. Inventories allocated to other assets in this manner are recognized as an expense over the useful life of the asset.

Information presentation

43. Financial statements must present the following information:

(a) The accounting policies used in determining the value of inventories, including the valuation method used;

(b) The total carrying amount of inventories and the carrying amount of each type of inventory classified in accordance with the entity;

(c) The carrying amount of inventories measured at fair value less costs to sell;

(d) Value of inventories recognized as expenses during the period;

(e) The amount of inventory write-downs are recognized as expenses during the period in accordance with paragraph 40;

(f) Reversal of inventory write-offs recognized in the statement of income for the period in accordance with paragraph 40;

(g) Circumstances or events leading to the reversal of an inventory write-down as provided for in paragraph 40; and

(h) The carrying amount of inventory mortgaged as security for liabilities.

44. Information about the carrying amount of different types of inventories held and the variability of these assets is useful to users of the financial statements. Generally, inventory is classified as goods, materials, tools, work-in-progress, and finished goods. A service provider's inventory can be described as a work-in-progress.

45. The value of inventories recognized as expenses in the period includes: costs previously included in the value of inventories that have now been sold, exchanged, or distributed, and manufacturing overheads. unallocated and inventory costs incurred above normal. There are cases where the entity may include other costs, such as distribution costs.

46. ​​Where an entity applies the income statement method in which the value of inventories is not presented as an expense item during the period. In this manner, the entity presents a breakdown of cost categories based on the nature of the costs. In this case, the entity must disclose the costs recognized in the period for: raw materials and supplies, labor and other costs, together with the net change in inventories during the period. .

Reference table of paragraphs of Vietnamese public accounting standards compared with paragraphs of international public accounting standards