Circular 200/2014/TT-BTC dated 22/12/2014 Guidelines for Enterprises Accounting Regime

Article 44. Accounting transactions of business cooperation contract

1. Accounting Principles

1.1. Business Cooperation Contract (BCC) is a contractual agreement by two parties or more to undertake an economic activity, but not forming an independent legal entity. This activity can be jointly controlled by the capital contributing parties under the joint venture agreement or controlled by one of the parties.1.2. BCC can be implemented in the form of jointly build assets or cooperate in some business activities. The parties in BCC may agree to share revenue, products or the profit after tax.

1.3. In all cases, when receiving money or property from other parties to contribute to the BCC activities, the receiver must account as a payable, not equity capital.1.4. For the BCC in the form of jointly controlled assets

a) The assets jointly controlled by the parties of joint venture are the assets bought, built and used for the purpose of joint ventures and benefited to parties of the joint venture in accordance with the provisions of the joint venture contract. The parties of joint venture is recognized their value of jointly controlled assets as in their financial statements

b) Each party of joint venture may receive products or revenue from the use and exploitation of jointly controlled assets and bear part of the costs incurred under the agreement in the contract.

c) The parties of joint venture have to open detailed accounting book on their same system of accounting books to record and reflect in their financial statements the following contents:

- Contributed capital in jointly controlled assets is classified according to the nature of the assets;

- The liabilities arising out of each party of joint ventures;

- The general liabilities arising suffered along with other parties of joint ventures from activities of the joint venture;

- The income from the sale or use of products divided from the joint venture with costs arising divided by operations of joint venture;

- Expenses incurred in relation to the capital contribution of joint venture.

For fixed assets, invested real estate contributed as capital to the BCC and have not transferred the ownership from the contributing party to the common ownership of the parties, the receiving party will supervise as kept asset, not account as increased asset and business capital; The contributing party do not enter as a reduction of assets in the accounting books, just tracking the location of assets.

For fixed assets, invested real estate contributed as capital and transferred the ownership from the contributing party to common ownership, in the process of being built jointly controlled assets; the contributing party has to enter as a reduction of assets in the accounting books and recorded the asset value into the cost of construction in progress. After the jointly controlled assets are completed, handed over, and put into use, basing on the value of shared property, the parties will record increase of their assets in accordance with purpose of use.

1.5. For the BCC in form of jointly controlled operationa) Business cooperation contract in the form of jointly controlled operation is a joint venture activity without establishment of a new business. The joint venture parties have their obligations and benefits as agreed in the contract. Activities of the joint venture agreement are performed by contributing parties together with the normal business activities of each party.

b) Business cooperation contract stipulates the expenses incurred from jointly controlled business operation by each joint venture party that party must bear. The general expenses (if any) will be based on the contractual agreement to divide to the contributing parties. c) The parties of joint venture have to open accounting books to record and reflect their financial statements with the following contents:

- Assets for capital contribution of joint venture and assets which are under the control of the contributing party;

- The incurred liabilities;

- Divided revenue from sales or service supply of the joint venture;

- Incurred Expenses.

d) When the joint venture party has general expenses, they must be recorded in accounting books and gathered to divide periodically as agreement of the joint venture contract. The accountant will set up a table of general expense division, and it will be confirmed by the joint venture parties, each party keeps a copy (original). Table of general expense division together with the original documents are legitimate grounds for a joint venture partner to account general expenses allocated from the contract.e) In case the joint venture contract stipulates the production share, periodically as agreed in the joint venture contract, the joint venture parties must make the table of production share for contributing parties and the parties will confirm the quantity, specifications of product divided from the contract, each party keeps a copy (original). Whenever deliver the product, the joint venture parties have to make a receipt of products (or ex-warehouse) in 2 copies, each party keeps 01 copy. Receipt of products is the basis for the joint venture parties to enter in accounting books, monitoring and liquidation basis.

d) In case some expenses, general revenue incurred from BCC that the parties have to suffer or enjoy, the joint venture parties must perform the accounting regulations as in case of jointly controlled business.1.6 . In case BCC shares profit after tax a) Profit share after tax is usually applied for BCC in the form of simultaneous jointly controlled operations or controlled by one party. In case BCC shares profit after tax, one party must be assigned to take account of all BCCs transactions, revenue recognition, costs, business results of BCC and tax settlement. When deciding to sign the BCC in this form, the parties must consider some risks which may incurre such as:

- Some expenses are not fully taxed as costs due to the transfer of assets between the parties, for example:+ Depreciation and amortization of fixed assets will not be accepted by the tax authorities as parties of BCC do not take procedures of ownership transfer to the party which perform the accounting and tax finalization for BCC;

+ Some of the parties expenses are not accepted by tax authorities as the input invoices are not in the name of party which perform the accounting and tax finalization for BCC; + Some costs incurre in parties of BCC and can not be transferred to the accounting and tax settlement because of legal barriers, such as parties of BCC have bills of payment for land use but the law does not allow the arising costs party to transfer to the accounting and tax settlement and the rental costs should not be included in the cost of BCC.- Risks on the policy:

+ The accounting and tax settlement for BCC may arise accumulated losses, but results of the BCC activities have some interest. In this case, instead of offsetting gains of BCC with losses from other activities, company still have to pay corporate income tax for the BCC; If BCC has losses but other activities are profitable, company can only be partially offseted corresponding to the losses in divided section in BCC;

+ For the other parties, if the fixed assets are put into the operation of BCC, depreciation expense may not be calculated as deductible expenses in business as they are not used for production, business in company (not suitable with revenue from other activities).b) In case the BCC stipulates to share profit after tax, the party which performs the accounting and tax settlement must base on the contracts nature to take the accounting in accordance with the principle:

- If BCC specifies that other parties in BCC is entitled to have a fixed profit that does not depend on the business results of the contract, in this case, even though the legal form of contract is the BCC, but the contracts nature is an asset lease. In this case, the accounting and BCC, the method of accounting for leasing contracts must be applied, payable to other parties must be recorded as the cost to determine the periodical business results, namely:+ Recognizing all revenue, cost and profit after tax of BCC on their report of business results; Earnings on share and standards of financial analyses calculated for the entire revenues, costs and profits of the BCC;

+ Recognizing after-tax profit of BCC into target "non-distributed profit after tax " of the Balance Sheet, the financial indicators related to after-tax profit margin is defined include all the results of BCC.

+ The other parties recorded the revenue from property rental for distributions from BCC.

- If the BCC specifies that the parties in BCC can be distributed profits only if the results of BCCs operations are profitable, at the same time they have to bear the losses, this case even though the legal form of BCC is the after-tax profit share but the of BCCs nature is to divide revenues, expenses, the parties usually have to have the rights, conditions, ability to jointly controlled the operations as well as cash flows of the BCC. The accounting and tax settlement party must apply the accounting method of revenue sharing BCC to recognize periodical revenue, expenses and business results and provide evidence of tax settlement for the other side, specifically:+ Recognizing revenue, expenses and profits on the income statement in corresponding to divided section from agreement of the BCC; Earnings on share and financial analyzing standards are calculated only for revenue, cost and profit presenting in the report of business results; the party of tax settlement provide copies of records and documents on the work performed their obligations to the state budget of BCC for parties of BCC to serve tax finalization of the other side of the BCC;

+ Non-distributed profit after tax of the balance sheet only includes after-tax profit which each party is entitled to enjoy.+ The other parties are recognized on report of business results the revenue, expenses in proportion to their divided section from BCC, report to the tax authorities about the amounts of revenues and expenses which had completed tax obligations in order to have a basis to adjust the payable of CIT.2. The accounting method of BCC in the form of jointly controlled assets

2.1. In case the parties of BCC contribute money to purchase jointly controlled assets, each party will base on the actual contributed amount to purchase the property, and:

Debit the accounts: 211, 213, 217

Debit the account: 133 - VAT is deducted (if any)

Credit the accounts: 111, 112.331, 341.2.2. In case the parties of BCC on their own or in collaboration with other partners to conduct the construction in order to get the jointly controlled assets, basing on the actual costs of the parties of BCC and:Debit the account: 241 - Construction in progress (details for jointly controlled assets)

Debit the account: 133 - VAT is deducted (if any)

Credit the accounts: 111, 112, 152, 153, 155, 156.211, 213 ...

Credit the accounts: 331, 3411, ...2.3. When the construction investing projects are completed and put into use, the parties have to settle and divide the value of jointly controlled assets. Basing on the minutes of dividing jointly controlled assets, the parties have to determine reasonable value of each asset to recognize in accordance withregulations of the law, and:

Debit the accounts: 211, 213, 217 (details of jointly controlled assets in accordance with the reasonable value of each part of divided asset)

Debit the account: 138 - Other receivable (expenses which are not approved, must be revoked if any)

Debit the account: 811 - Other expenses (if the reasonable value of divided assets is less than construction cost)

Credit the account 241: Construction in progressCredit the account 711 - Other income (if the reasonable value of divided assets is greater than construction cost)2.4. The record method of economic transactions relating to cost accounting, revenue that the parties of jointly controlled assets must incur or enjoy when the assets are put into operation and BCC is switched to the form of jointly controlled operation conducted as prescription for jointly controlled operation.3. The accounting method of BCC in the form of jointly controlled operation3.1. Accounting the capital contribution and capital receipt of jointly controlled business operationa) At the receiving party of contributed capital - Pursuant to capital contribution minutes of the parties in the jointly controlled joint venture contract, the capital receiving party will:

Debit the accounts: 111.112, 152, 155, 156 ...

Credit the account: 338 other payable.

When give the contributed capital back to parties, the accountant will reserve above accounting. If there is any difference between the reasonable value of the returned asset and the value of contributed amount of the parties, the accountant must reflect as other income or other expenses.

- If contributed capital is in fixed assets without the transfer of ownership, the receiving party only follows details on administrative system and notes as the assets held under trust.b) At the capital contributing party- Pursuant to capital contributions minutes of the parties in the jointly controlled joint venture contract, the capital contributing party will:

Debit the account: 138 - Other receivables

Credit the account: 111.112, 152, 155, 156 ...

Upon receipt of the contributed capital, the accountant will reserve above accounting. If there is any difference between the reasonable value of received assets and the value of contributed capital, the accountant must reflect as other income or other expenses.

- If the contributed capital is in fixed assets without the transfer of ownership, the capital contributing party will not record as a reduction in fixed assets but only track the details on system of administration and interpretation about the propertys location.3.2. Accounting own costs incurred in each joint venture party- Basing on the bill, related documents, all own costs incurred by the joint venture party when participating in jointly controlled business operation, and:

Debit the accounts: 621, 622, 627, 641, 642 (detailed joint venture agreement)

Debit the account: 133 - VAT is deductible (if any)

Credit the accounts: 111, 112, 331, ...

- At the end of period, transitting own costs to aggregate the business cost of the joint venture contract, and:

Debit the account 154 - Cost of unfinished business (details for joint venture agreement)

Credit the accounts: 621, 622, 627 (details for joint venture agreement).3.3. Accounting expenses incurred by the joint venture each party to bear:

a) Accounting parties in joint venture expenses incurred in common:

- When the general expenses incurred by each party shall bear joint venture, based on the invoices from the relevant record:

Debit Accounts 621, 622, 627, 641, 642 (detailed joint venture agreement)

Debit Account 133 - VAT is deductible (if any)

Credit Accounts 111, 112, 331, ...

- If the joint venture contract prescribe to divide the common expenses, at the end of period, the accountant will set up the common expenses allocating table to joint venture contributing parties and after accepted by joint venture parties, basing on the cost allocated to the other joint venture contributing parties, and:

Debit the account 138 - Other receivables (details for each partner)

Credit the account 133 - VAT is deducted (if the input tax is split)

Account 3331 payable VAT (if the input tax of common expenses were deducted, must record an increase in payable of output tax)

Credit the account: 621, 622, 627, 641, 642.b) Accounting at the joint venture party which does not account common expenses for the joint venture contract:

Basing on common expenses allocating table of the joint venture contract accepted by joint venture contributing parties (announced by joint venture party which have arising cost), then:

Debit the accounts: 621, 622, 623, 641, 642 (details for joint venture agreement)

Debit the account 133 - VAT is deducted (if any)

Account 338 - Other payables (details for the joint venture party which have arising common expenses).3.4. Accounting in case of production sharing contract:

- Upon receipt of the product divided from the joint venture contract and storage, basing on the delivery note from the contract, the storage note and the relevant documents, then:

Debit the account 152 - Raw materials (if the divided product is still not finished products)Debit the account 155 - The finished product (if the divided product is finished product)

Debit the account 157 - Goods for sale (if the divided product is taken into sale without storage)

Credit the account 154 - Unfinished business expenses (including own costs and common costs that each party of joint venture has to be incurred) (details for the joint venture agreement).

- Upon receipt of the divided products from the contract and put into use immediately to produce other products, basing on delivery notes from the contract and related documents, then:

Debit the account 621 - Costs of direct raw materials.

Account 154 - Unfinished business expenses (including own costs incurred and common costs that each party of the joint venture has to be incurred) (details for the joint venture agreement).

- In case the joint venture contract do not stipulate to share the product but assign 01 party to sell out, after issuing the invoice for the product sale party, transiting own costs and common costs that each party of joint venture has to be incurred into the original price of sale product, then:

Debit the account 632 Original price of sale products.Account 154 - Unfinished business expenses (including own costs and common costs that each party of the joint venture has to incurred) (details for the joint venture agreement).

3.5. Accounting the revenue of product sales in the event 01 party of joint venture sells products and shares revenue for other partners:a) Accounting at the sale party:

- When selling products under the provisions of contract, the seller has to issue invoices for all sold products, at the same time reflects the total amount of selling product for joint venture operation, and:

Debit the accounts: 111, 112, 131, ...

Credit the account 338 - other payables (details for joint venture contract)

Credit the account 3331 - payable VAT (if any).

- Pursuant to the provisions of the joint venture agreement and revenue allocation table to reflect the revenue corresponding to the interests of the entitled parties of joint venture. and:

Debit the account 338 - other payable (details for the joint venture contract)

Credit the account 511 - Revenues from sales and service supply (the entitled benefits for seller in accordance with the contract).

- After comparing the common costs incurred by each party and division of revenue for parties in accordance with the contract, the accountant will offset other receivables and other payables (details for each party of BCC), then :

Debit the account 338 OpayablesAccount 138 - Other receivables.

- When paying for the sale of products as the partner of joint venture which do not sell is entitled to enjoy, then:Debit the account 338 Other payable (each partner of joint venture)

Credit the accounts: 111, 112, ...b) Accounting at the un-sale party:

- The joint venture party do not sell the product of joint venture, basing on revenue allocation table confirmed by joint venture parties and related documents supplied by the sale party to issue the bill to sale party in accordance with enjoyable amount of revenue, then:Debit the account 138 - Other receivables (including VAT if the output VAT is split, details for the joint venture partners which sell product)

Credit the account 511 - Revenues from sales and services supply (details for the joint venture contract and in accordance with divided amount)

Credit the account 3331 - payable VAT (if the output VAT is split).

- When the partners of joint venture pay for product sales, basing on the actual amount, then:

Debit the accounts 111, 112, ... (the amount paid by partner of contract)

Credit the account 138 - Other receivables (details for each sale party).4. The accounting method of BCC -profit divided after tax

4.1. In the event each party is divided a fixed amount which does not depend on the business results of BCC (The accounting and tax settlement party of BCC) ,:

a) At the implementation party of accounting and tax settlement for BCC

- In case of receiving money, materials, goods from capital contributed party, then:

Debit the accounts: 112, 152, 156 ...

Credit the account 338 Other payable.

- When generating revenues, costs for BCC, the accountant receives all revenues, expenses as for their own transactions under prescription of law.

- When determining the amount which must be paid periodically to other party under the contract, then:

Debit the accounts: 627, 641, 642

Credit the account 338 Other payables.

- Giving the contributed amount of money, materials back to parties, then:Debit the account 338 Other payables.Credit the accounts: 112, 152, 156 ...

If there is any difference between the reasonable value of the returned asset and the value of the contributed capital, the accountant has to reflect other income or other expenses.b) At the non-implementation party of accounting and tax settlement for BCC

- When contributing capital to BCC, then:

Debit the account 138 - Other receivables

Credit the account: 112, 152, 156 ...

- Upon receipt of notice on the interest divided from BCC, then:

Debit the account 138 - Other receivables

Credit the account 511 - Revenue from sale of goods or service supply (5113).

- Upon receipt of the contributed capital, then:

Debit the accounts 112, 152, 156 ...

Credit the account 138 - Other receivables.

If there is any difference between the reasonable value of the received assets and the value of contributed capital, the accountant has to reflect other income or other expenses.

4.2. In the event parties are divided revenue depending on the business results of BCC (the parties have the joint control right of BCC):

a) At the implementation of accounting and tax settlement partya1) The recognition of contributed capital and the return of contributed capital to the parties are implemented as the above 4.1.

a2) When recognizing the BCCs revenue, the accountant will record all revenues generated in the accounting books - account 511 - as a basis for comparison, explanation and determine the taxable revenue for BCC:- Recognizing revenue of BCC, then:

Debit the accounts: 112, 131

Credit the account 511 - Revenue from sale of goods or service supply.Credit the account 3331 - payable VAT.

In the report of business results, only the revenue in proportion to enjoyable part can be presented in the target "Revenues from sales and service supply"

- Periodically, the accountant records a reduction of BCCs revenue in proportion to the parties enjoyable parts, then:

Debit the account 511 - Revenue from sale of goods or service supply.Debit the account 3331 - payable VAT (if VAT is also divided)

Credit the account 338 Other payables.a3) When recording the BCCs costs, the accountant records all expenses in the accounting books, relating accounts as a basis for comparison, determinine the taxable costs of BCC:

- When arising costs of BCC, then:

Debit the account: 632, 641, 642 ...

Credit the accounts: 112, 331, 154, 155 ...

In the report of business results, only the expenses in proportion to incurred parts can be presented in the target of expenses. - Periodically, the accounant records a reduction of BCCs in proportion to the incurred parts of the other party, then:

Debit the account 138 - Other receivables

Credit the account 632, 641, 642.- When determining the payable corporate income tax for the BCC, the tax settlement party will inform to other parties about the obligations for taxable amount of each party, then:

Debit the account 8211 Expenses of corporate income tax (the payable amount of the tax settlement party)

Debit the account 138 - Other receivables (the amount paid for other parties of BCC)Credit the account 3334 - CIT (total of payable CIT).

- After comparing the common arising costs each party shall bear and the amount of divided revenue to parties under the contract, the accountant has to offset other receivables and other payables (details for each parties of BCC), and :

Debit the account 338 Other payablesCredit the account 138 - Other receivables.

b) In the non-implementation of accounting and tax settlement party:- When contributing the capital to BCC, then:

Debit the account 138 - Other receivables

Credit the accounts: 112, 152, 156 ...

- Basing on expenses allocation table of the joint venture agreement accepted by joint venture contributed parties (announced by the implementation of accounting and tax settlement party), then:

Debit the accounts: 621, 622, 623, 641, 642 (details for joint venture agreement)

Debit the account 133 - VAT is deducted (if any)

Credit the sccount 338 Other payables- Pursuant to the payable CIT announced by the tax settlement party, then:

Debit the account 821 Eexpenes of current CITAccount 338 Other payables.

- Basing on the revenue allocation table confirmed by joint venture parties and related documents provide by the sale party, the bill will be issued for the sale party according to the enjoyable revenue , then:

Debit the account 138 - Other receivables (including VAT if the output VAT is split, details for the joint venture parties)

Credit the account 511 - Revenues from sales and services supply (details for the joint venture contract and the divided amount)

Credit the account 3331 - payable VAT (if the output VAT is split).

- After comparing the common arising each party shall bear and the amount of divided revenue to parties under the contract, the accountant will offset other receivables and other payables (details for each party of BCC), and :

Debit the account 338 Other payablesCredit the account 138 - Other receivables.- When the partners of joint venture pay for sales, basing on the actual amount of receipt, then: Debit the accounts: 111, 112, ... (the amount paid by partners in contract)

Credit the account 138 - Other receivables (details for each sale party).

- Upon receipt of the return contributed capital, andDebit the accounts: 112, 152, 156 ...

Credit the account 138 - Other receivables

If there is any difference between the reasonable value of the received assets and the value of contributed capital, the accountant has to reflect other income or other expenses.