The depreciable value of tangible fixed assets shall be allocated systematically during their useful life

The depreciable value of tangible fixed assets shall be allocated systematically during their useful life.

accounting-services-in-vietnam2The depreciation method must be suited to the economic benefits yielded by the assets to the enterprises.

The depreciated amount of each period shall be accounted into the production and business expenses in the period, unless they are included in the value of other assets, such as depreciation of tangible fixed assets used for activities in the development stage is a cost component of the historical cost of intangible fixed assets (according to the regulations of the standard intangible fixed assets), or the depreciation cost of tangible fixed assets used in the process of self-constructing or self-making other assets.

30. Economic benefits yielded by tangible fixed assets shall be gradually exploited by the enterprises through the use of these assets.

Nevertheless, other factors, like technical backwardness, wear-and-tear of these fixed assets due to their non-use, often cause reductions in the economic benefits which the enterprises expect these assets would bring about. Therefore, when determining the useful life of tangible fixed assets, the following factors must be taken into account:

a/ The extent of use of such asset, estimated by the enterprise. The extent of use is assessed according to the estimated capacity or output;

b/ The extent of wear-and-tear, depending on the related elements in the asset’s use process, such as the number of working shifts, the enterprise’s repair and maintenance of the asset as well as its upkeep when not in operation;

c/ Invisible wear-and-tear arising from the replacement or renovation of the technological chain or changes in the market demand for the products or service turned out by the asset;

accounting-services-in-vietnam1d/ Legal constraints in the asset use, such as the date of expiry of the contract of financial-leasing fixed assets.

31. The useful life of tangible fixed assets shall be determined by the enterprises mainly on the expected use extent of the assets. However, due to the asset management policy of the enterprises, the estimated useful life of fixed assets may be shorter than their actual useful life. Therefore, the estimation of the useful life of a tangible fixed asset must be also based on the enterprise’s experiences on assets of the same type.

32. Three methods of depreciation of tangible fixed assets are:

– Straight-line depreciation method;

– Declining-balance depreciation method; and

– Units-of-output depreciation method.

By the straight-line depreciation method, the annual depreciation amount is kept unchanged throughout the useful life of assets. By the declining-balance depreciation method, the annual depreciation amount gradually declines throughout the useful life of assets.

The units-of-output depreciation method is based on the estimated total quantity of product units the assets may turn out. The depreciation method applied by the enterprises to each tangible fixed asset must be implemented consistently, except where appear changes in the mode of its use.

The enterprises must not continue depreciating tangible fixed assets which have been entirely depreciated but still used for production and business operations.