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Elements of Financial Statements according to Vietnam Accounting Standards

Financial statements reflect a company's financial position by aggregating economic and financial transactions of the same economic nature into elements of financial statements. The elements directly related to determining the financial position in the balance sheet are Assets, Liabilities, and Equity. The elements directly related to assessing the financial performance in the income statement are Revenue, Other Income, Expenses, and Profit.


Financial Position

18. The elements directly related to determining and assessing the financial position are Assets, Liabilities, and Equity, which are Defined as follows:

a/ Assets: Resources controlled by the enterprise that result from past events and from which future economic benefits are expected to flow to the enterprise.

b/ Liabilities: Present obligations of the enterprise arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits.

c/ Equity: The residual interest in the assets of the enterprise after deducting liabilities.

19. When identifying items within the elements of the financial statements, attention should be given to the legal form and economic substance of those items. In some cases, assets not legally owned by the enterprise but reflecting their economic substance are included in the elements of the financial statements. For example, in the case of finance leases, the legal form and economic substance indicate that the lessee obtains economic benefits from using the leased assets for a significant portion of their useful life, while the lessee has an obligation to make payments approximating the fair value of the assets and related finance charges. Finance lease transactions give rise to the recognition of "Assets" and "Liabilities" items in the balance sheet of the lessee.

Assets

20. The future economic benefits of an asset are the potential to contribute directly or indirectly to the cash flows and cash equivalents of the enterprise or to reduce cash outflows.

21. The future economic benefits of an asset are typically seen in cases such as:

a/ Its use, either singly or in combination with other assets, in producing goods or services to be sold or in providing services to customers;

b/ Its exchange for other assets;

c/ Its settlement of liabilities;

d/ Its distribution to the owners of the enterprise.

22. Assets can be tangible, such as buildings, machinery, equipment, materials, inventory, or intangible, such as copyrights, patents, but they must provide future economic benefits and be under the control of the enterprise.

23. Enterprise assets may include assets not legally owned by the enterprise but controlled and expected to yield economic benefits in the future, such as finance lease assets; or assets owned by the enterprise and expected to yield economic benefits in the future, but may not be legally controlled, such as trade secrets obtained from research and development activities that meet the criteria of assets as long as those secrets remain confidential and the enterprise receives economic benefits.

24. Enterprise assets arise from past transactions or events, such as capital contributions, purchases, self-production, grants, or donations. Transactions or events expected to occur in the future do not increase assets.

25. Usually, when expenses are incurred, assets are created. Expenses that do not generate economic benefits in the future do not result in the creation of assets. There are also cases where assets are generated without incurring expenses, such as contribtuted capital, granted assets, and gifted assets.

Debt and Equity

26. Liabilities represent the current obligations of the enterprise when the enterprise acquires an asset, incurs a commitment, or has a legal obligation.

27. The payment of current obligations can be made in various ways, such as:

a/ Payment in cash;

b/ Payment in other assets;

c/ Providing services;

d/ Replacing this obligation with another obligation;

đ/ Converting the debt obligation into equity.

28. Liabilities arise from past transactions and events, such as unpaid purchases of goods, services used but not paid for, borrowing, product warranty commitments, contractual obligations, employee compensation, taxes payable, and other payable obligations.

Equity

29. Equity is reflected in the balance sheet and includes: capital of investors, surplus capital of joint-stock companies, retained earnings, funds, undistributed profits, exchange rate differences, and revaluation differences of assets.

a/ Capital of investors may be the capital of business owners, contributed capital, capital stock, state capital;

b/ Surplus capital of joint-stock companies is the difference between the nominal value of shares and the actual issue price;

c/ Retained earnings are after-tax profits retained to accumulate additional capital;

d/ Funds, such as reserve funds, contingency funds, investment development funds;

đ/ Undistributed profits are after-tax profits not distributed to owners or not allocated to funds;

e/ Exchange rate differences, including:

+ Exchange rate differences arising during the construction process;

+ Exchange rate differences arising when the enterprise consolidates the financial statements of foreign operations using a different accounting currency from the accounting currency of the reporting enterprise.

g/ Revaluation differences of assets are the differences between the book value of assets and the revaluation value of assets when there is a decision by the State, or when assets are contributed to joint ventures or share capital.

Business Situation

30. Profit is the measure of a company's operating performance. The elements directly related to profit determination are Revenue, Other Income, and Expenses. Revenue, Other Income, Expenses, and Profit are indicators that reflect the business situation of the company.

31. The elements of Revenue, Other Income, and Expenses are defined as follows:

a/ Revenue and Other Income: The total value of economic benefits received by the enterprise during the accounting period, arising from normal production and business activities and other activities of the enterprise, contributing to increasing equity, excluding contributions from shareholders or owners.

b/ Expenses: The total value of items that reduce economic benefits during the accounting period in the form of cash payments, deductions from assets, or the incurrence of liabilities leading to a decrease in equity, excluding distributions to shareholders or owners.

32. Revenue, Other Income, and Expenses are presented in the Statement of Comprehensive Income to provide information for evaluating the company's ability to generate cash and cash equivalents in the future.

33. Revenue, Other Income, and Expenses can be presented in various ways in the Statement of Comprehensive Income to report the company's business situation, such as Revenue, Expenses, and Profit from normal business operations and other activities.

Revenue and other income

34. Revenue arises from the normal business operations of the enterprise and typically includes: Sales revenue, service revenue, interest income, royalty income, dividends, and profits distributed...

35. Other income includes income from activities outside those generating revenue, such as income from liquidation, sale of fixed assets, customer penalty fees for contract violations,...

Expenses

36. Expenses consist of production and operating costs arising from the normal business operations of the enterprise and other expenses.

37. Production and operating costs arising from the normal business operations of the enterprise, such as the cost of goods sold, selling expenses, enterprise management expenses, interest expenses, and expenses related to activities for other parties using assets that generate returns, royalty fees,... These expenses occur in the form of cash and cash equivalents, inventory, depreciation of machinery and equipment.

38. Other expenses include costs outside of production and operating costs arising from the normal business operations of the enterprise, such as costs related to liquidation, sale of fixed assets, customer penalty fees for contract violations,...

Recognition of Financial Statement Elements

39. The financial statements must recognize elements related to the financial position and business performance of the enterprise; these elements must be recognized item by item. An item is recognized in the financial statements when it satisfies both criteria:

a/ There is a reasonable certainty of obtaining or reducing future economic benefits;

b/ The item has a reliable value and its value is determinable.

Recognition of Assets

40. Assets are recognized in the balance sheet when the enterprise has a reasonable certainty of obtaining future economic benefits, and the value of the asset is reliably determinable.

41. Assets are not recognized in the balance sheet when the costs incurred are not reasonably certain to bring future economic benefits to the enterprise, in which case these costs are recognized immediately in the statement of profit or loss when they are incurred.

Recognition of Liabilities

42. Liabilities are recognized in the balance sheet when there is reasonable certainty that the enterprise will have to use an amount of money to settle current obligations that the enterprise must pay, and that liability must be reliably determinable.

Recognition of Revenue and other income

43. Revenue and other income are recognized in the statement of profit or loss when future economic benefits related to the increase in assets or reduction in liabilities are obtained, and the increase in value is reliably determinable.


Recognition of Expenses

44. Production and operating expenses, and other expenses are recognized in the statement of profit or loss when these expenses reduce future economic benefits related to the reduction of assets or increase in liabilities, and these expenses must be reliably determinable.

45. Expenses recognized in the statement of profit or loss must comply with the principle of matching revenue and expenses.

46. When the expected economic benefits to be obtained over multiple accounting periods are indirectly determined in relation to revenue and other income, the related expenses are recognized in the statement of profit or loss based on allocation or proportion.

47. An expense is recognized immediately in the statement of profit or loss in the period when it does not bring economic benefits in subsequent periods.


According to Vietnamese Accounting Standard (VAS)






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