INVENTORIES
GENERAL PROVISIONS
01. This standard aims to prescribe and
guide the principles and method of accounting the inventories, including:
determination of the value of inventories and accounting it as expense; the
marking-down of inventories to suit the net realizable value and the method of
calculating the value of inventories to serve as basis for recording accounting
books and making financial statements.
02. This standard shall apply to
accounting inventories on the original price
principle, except when other prescribed accounting standards permit the
application of other accounting methods to inventories.
03. For the purposes of this standard,
the terms used herein are understood as follows:
Inventories: are assets which are:
a/ held for sale in the normal
production and business period;
b/ in the on-going process of
production and business;
c/ raw materials, materials, tools and
instruments for use in the process of production and business or provision of
services.
Inventories consist of:
- Goods purchased for sale: goods in
stock, purchased goods being transported en route, goods sent for sale, goods
sent for processing;
- Finished products in stock and
finished products sent for sale;
- Unfinished products: uncompleted
products and completed products not yet going through the procedures for being
put into stores of finished products;
- Raw materials, materials, tools and
instruments in stock, sent for processing, and already purchased but being
transported en route;
- Costs of unfinished services.
Net
realizable value means the estimated
selling price of inventories in a normal production and business period minus
(-) the estimated cost for completing the products and the estimated cost
needed for their consumption.
Current
price means a sum of money payable
for the purchase of a similar kind of inventory on the date the accounting
balance sheet is made.
CONTENTS OF THE STANDARD
DETERMINATION OF THE VALUE OF
INVENTORIES
04. Inventories are valued according to
their original prices. Where the net realizable value is lower than the
original price, they must be valued according to the net realizable value.
Original prices of inventories
05 The original price of inventories
consists of the purchasing cost, processing cost and other directly-related
costs incurred for having the inventories stored in the present place and
conditions.
Purchasing cost
06. The purchasing cost of inventories
consists of the buying price, non-refundable taxes, transportation cost,
loading and unloading cost, preservation cost incurred in the buying process
and other costs directly related to the purchase of the inventories. Trade
discounts and reductions in the prices of purchased goods due to their wrong
specifications and/or inferior quality, shall be deducted from the purchasing
cost.
Processing cost
07. The processing costs of inventories
consist of those directly related to the manufactured products, such as cost of
direct labor, fixed and variable general production costs incurred in the
process of turning raw materials and materials into finished products.
Fixed general production costs means
indirect production costs, which are often
invariable regardless of the volume of manufactured products, such as
depreciation cost, maintenance cost of machinery, equipment, workshops… and
administrative management cost at production workshops.
Variable general production costs means
indirect production costs, which often change directly or almost directly
according to the volume of manufactured products, such as costs of indirect raw
materials and materials, cost of indirect labor.
08. Fixed general production costs
shall be allocated into the processing cost of each product unit on the basis
of the normal production capacity of machinery. Normal capacity is the average
quantity of products turned out under normal production conditions.
- Where the quantity of
actually-manufactured products is higher than the normal capacity, the fixed
general production costs shall be allocated to each product unit according to
actually incurred costs.
- Where the quantity of
actually-manufactured products is lower than the normal capacity, the fixed
general production costs shall be allocated into the processing cost of each
product unit only according to the normal capacity. The unallocated amount of
general production costs shall be recognized as production and business expense
in the period.
The variable general production costs
shall be entirely allocated into the processing cost of each product unit
according to the actually incurred costs.
09. Where various kinds of products are
manufactured in a single production process in the same duration of time and
the processing cost of each kind of product is not separately expressed, the
processing cost shall be allocated to those kinds of products according to
appropriate and consistent norms in all accounting periods.
Where by-products are turned out, their
value shall be calculated according to the net realizable value and subtracted
from the processing cost already calculated for the principal products.
Other directly-related costs
10. Other directly-related costs shall
be incorporated into the original prices of inventories, including costs other
than the purchasing cost and processing cost of inventories. For example, the original
price of finished products may consist of the product-designing cost for a
particular order.
Costs not permitted to be incorporated
in the original price of inventories
11. Costs not permitted to be
incorporated into the original price of inventories, are:
a/ Costs of raw materials, materials,
labor and other production and business costs incurred at a level higher than
normal;
b/ Costs of inventories preservation
minus the inventories preservation cost needed for subsequent production
processes and the preservation cost prescribed in paragraph 06;
c/ Sale cost;
d/ Enterprise management costs.
Service provision cost
12. Service provision cost consists
of personnel costs and other costs
directly related to the service provision, such as supervision cost and related
general costs.
Personnel costs and other costs related
to goods sale and enterprise management shall not be included in the service
provision cost.
METHOD OF CALCULATING THE VALUE OF
INVENTORIES
13. The value of inventories shall be
calculated according to one of the following methods:
a/ Specific identification method;
b/ Weighted average method;
c/ First-in, First-out method;
d/ Last-in, First-out method.
14. The specific identification method
shall apply to enterprises having a few goods items or stable and identifiable
goods items.
15. By the weighted average method, the
value of each kind of inventories shall be calculated according to the average
value of each similar kind of goods at the beginning of the period and the
value of each kind of inventories purchased or manufactured in the period. The
average value may be computed either according to periods or the time when a
goods lot is warehoused, depending on the enterprise’s situation.
16. The First-in, First-out method
shall apply upon the assumption that the first inventories purchased or
manufactured is the first inventories delivered, and the inventories left at
the end of the period are those purchased or produced at a time close to the
end of the period. By this method, the value of the delivered goods shall be
computed according to the price of the lot of goods warehoused at the beginning
of the period or at a time shortly after the beginning of the period, the value
of the inventories shall be computed according to the price of the goods
warehoused at the end of the period or at a time shortly before the end of the
period.
17. The Last-in First-out method shall
apply upon the assumption that the most recently purchased or manufactured
inventories are delivered first, and the inventories left at the end of the
period are those which are purchased or produced earlier. By this method, the
value of the delivered goods shall be computed according to the price of the
lot of goods warehoused most recently or shortly earlier; the value of the
inventories shall be computed according to the price of the goods warehoused at
the beginning of the period or shortly after the beginning of the period, which
still remain in stock.
NET REALIZABLE VALUE AND SETTING UP OF
THE INVENTORY PRICE DECREASE RESERVE
18. The value of inventories cannot be
fully recovered when they become
damaged, outmoded, their selling prices fall or the finishing and/or
sale costs rise. The marking-down of inventories to the level equal to the net
realizable value is compliant with the principle that assets must not be shown
at a value higher than the realized value estimated from their sale or use.
19. At the end of the accounting period
of the year, when the net realizable value of inventories is lower than their
original price, the reserve for inventory price decrease must be set up. The
amount of the to be-set up inventory price decrease reserve is the difference
between the original price of inventories and their net realizable value. The
inventory price decrease reserve shall be set up for each kind of inventories.
For services incompletely provided, the inventory price decrease reserve shall
be set up for each type of service with different charges.
20. The estimation of the net
realizable value of inventories must be based on reliable evidences gathered at
the time of estimation. Such estimation must take into account price
fluctuations or costs directly related to events occurring after the ending day
of the fiscal year, which have been
anticipated through conditions existing at the time of estimation.
21. When estimating the net realizable
value, the purpose of the storage of inventories must be taken into account.
For example, the net realizable value of the inventories reserved to ensure the
performance of uncancellable sale or service provision contracts must be based
on the values inscribed in such contracts. If the volume of inventories is
bigger than that of goods needed for a contract, the net realizable value of
the difference between these two volumes shall be appraised on the basis of the
estimated selling price.
22. Raw materials, materials, tools and
instruments reserved for use in the manufacture of products must not be valued
lower than their original price if the products which have been manufactured
with their contributions are to be sold at prices equal to or higher than their
production costs. Where there appear decreases in the prices of raw materials,
materials, tools and/or instruments but the production costs of products are
higher than their net realizable value, the raw materials, materials, tools and
instruments left in stock may have their value lowered to be equal to their net
realizable value.
23. At the end of the accounting period
of the subsequent year, a new appraisal of the net realizable value of
inventories by the end of such year must be conducted. Where at the end of the
accounting period of the current year, if the to be-set up reserve for
inventory price decrease is lower than the inventory price decrease reserve already
set up at the end of the accounting period of the previous year, the difference
thereof must be added thereto (under the provisions in paragraph 24) in order
to ensure that the value of inventories shown on financial statements is
computed according to the original price (if the original price is lower than
the net realizable value) or according to the net realizable value (if the
original price is higher than the net realizable value).
RECOGNITION OF COSTS
24. When selling inventories, the
original price of goods sold shall be recognized as production and business
expense in the period in consistence with the recognized turnover related
thereto. All the difference between the higher inventory price decrease reserve
to be set up at the end of the current year’s accounting period and the lower
inventory price decrease reserve already set up at the end of the previous
year’s accounting period, volumes of damaged and lost inventories, after
subtracting the compensations paid by individuals due to their liabilities, and
unallocated general production costs, shall be recognized as production and
business expense in the period. Where the inventory price decrease reserve to
be set up at the end of the current year’s accounting period is lower than the
inventory price decrease reserve already set up at the end of the previous
year’s accounting period, the difference thereof must be added and recorded as
decrease in production and business expense.
25. Recognition of the value of goods
sold as expense incurred in the period must ensure the expense - turnover
matching principle.
26. Where some kinds of inventories are
used for manufacture of fixed assets or use like self-manufactured workshops,
machinery and/or equipment, the original price of these inventories shall be
accounted into the fixed asset value.
PRESENTATION OF FINANCIAL STATEMENTS
27. In their financial statements, the
enterprises must present:
a/ Accounting policies applied in the
appraisal of inventories, including the method of computing the value of inventories;
b/ The original prices of the total
inventories and of each kind of inventories classified in a way suitable to the
enterprise;
c/ The value of the inventory price
decrease reserve;
d/ The value re-included from the
inventory price decrease reserve;
e/ Cases or events resulting in the
addition to or re-inclusion from the inventory price decrease reserve;
f/ The book value of inventories (the
original price minus (-) the inventory price decrease reserve) already
mortgaged or pledged for payable debts.
28. Where the enterprises compute the
value of inventories by the Last-in, First-out method, their financial
statements must show the difference between the value of inventories presented
in the accounting balance sheet and:
a/ The period-end value of inventories,
which is calculated by the First-in, First-out method (if this value is lower
than the period-end value of inventories calculated by the weighted average
method as well as the net realizable value); or
And the period-end value of inventories
which is calculated by the weighted average method (if this value is lower than
the period-end value of inventories calculated by the First-in, Fist-out method
as well as the net realizable value); or
And the period-end value of inventories
which is calculated according to the net realizable value (if this value is
lower than the value of inventories calculated by the First-in, First-out
method and the weighted average method); or
b/ The period-end current value of
inventories on the date the accounting balance sheet is made (if this value is
lower than the net realizable value); or, and the net realizable value (if the
period-end value of inventories which is calculated according to the net
realizable value is lower than the period-end value of inventories which is
calculated according to the current value on the date the accounting balance
sheet is made).
29. Presentation of inventories costs
in the reports on the production and business results, which are classified
functionally.
30. Functional classification of costs
means that inventories are presented in the section “Original price of goods
sold” in the business result reports, including the original price of goods
sold, the inventory price decrease reserve, damaged and lost volumes of
inventories after subtracting the compensations paid by individuals due to
their liabilities, and unallocated general production costs.
0 nhận xét:
Đăng nhận xét