Through the receiving and responding system to businesses’ recommendations, the Crowe Vietnam Co., Ltd. would like to ask authorities to guide the capitalization of interest expenses when purchasing machinery and equipment. In 2018 ,the Crowe Vietnam Co., Ltd. had a bank loan for the purchase of machinery (fixed assets), but these machines need to be assembled and tested to form a production line produced for a long enough time. From the provisions of Standard 03, Circular 200/2014 / TT-BTC and Circular 45/2013 / TT-BTC, the Crowe Vietnam Company Limited is understanding that interest expenses can be capitalized when using the loan, borrowing to purchase machinery and equipment (a type of fixed asset) because these are directly related expenses that must be spent up to the time the fixed asset is ready for use.
However, the Company recognizes that VAS 16 only guides interest expenses capitalization when interest expenses directly related to the investment in construction or production of work in progress are included in the value of that asset, not to mention whether the interest expenses will be capitalized on the purchase of machinery.
In fact, the Ministry of Finance did not respond to interest expenses capitalized on newly purchased machinery and equipment. The response from the Hanoi Tax Department accepts the capitalization of interest expenses on fixed asset procurement.
Due to different instructions, the Crowe Vietnam Co., Ltd. proposes to answer the question about the interest expense recognition policy as mentioned so that the company can comply with the regulations.
Regarding this issue, the Ministry of Finance answers as follows:
In replying to businesses about capitalization of interest expenses when purchasing machinery and equipment, the Ministry of Finance responds in the direction that businesses must not capitalize interest expenses to buy new machinery and equipment and bring right into use. This guidance by the Ministry of Finance is completely consistent with the following legal bases:
- Paragraphs 07, 08, Vietnam Accounting Standard No. 16- Borrowing costs (VAS 16) stipulates that businesses are only allowed to capitalize borrowing costs directly related to the construction investment or production of incomplete assets. In which incomplete assets are assets in the construction process and assets in production need a long enough time (more than 12 months) to be put into use according to predetermined purposes. or for sale.
- Point d1, Clause 1, Article 35 of Circular No. 200/2014 / TT-BTC dated December 22, 2014 guiding the payment regime for enterprises:
“d1) Historical costs of purchased tangible fixed assets include: purchase prices (deducted from trade discounts or rebates), taxes (excluding refundable taxes) and any directly-attributable expenses of putting such assets into ready-for-use state, such as site preparation, initial delivery and material handling, installation or testing costs (deducted (-) from any recoverable values on products or scraps from testing), professional fees and any other directly-attributable expenses. The interest cost from loans for purchase of completed fixed assets (fixed assets available for immediate use without construction investment) shall not be capitalized on historical costs of fixed assets.”.
In Article 2 of Circular No. 200/2014 / TT-BTC dated December 22, 2014 of the Ministry of Finance guiding the business accounting system stipulates: “This Circular guides the recording, making and presentation of accounting books. financial statements, not applicable to the determination of a businesses's liabilities to the State budget”.
Thus, Vietnam Accounting Standard No. 16- Borrowing costs, Circular No. 200/2014 / TT-BTC guiding the corporate accounting regime has regulated the capitalization of interest expenses when purchasing machines. equipment. Therefore, it is recommended that Crowe Vietnam CCo Ltd base on the above regulations and reality at the unit to record the accounting books, prepare and present the financial statements in accordance with the law.