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Accounting Principle Research - Inventory - Comparison of VAS and IAS
Project 1: INVENTORIES – A COMPARISON OF VAS AND IAS KT205DE01 Lecturer: PhD. Nguyễn Thanh Nam December 19 th , 2012 FACULTY OF ECONOMICS AND COMERCE HOA SEN UNIVERSITY FACULTY OF ECONOMICS AND COMERCE Project 1: INVENTORIES – A COMPARISON OF VAS AND IAS KT205DE01 Members Nguyễn Thị Hoàng Yến 093400 Trương Thúy Vi 093395 Đoàn Diệp Bích Ngân 101439 December 19 th , 2012 Hoa Sen University Project 1 - Report i ABSTRACT The System of International Accounting Standards (IAS) is the principled standards which have been adopted by many countries and enterprises around the world. In this report, we would like to compare the "Inventories" account based International Accounting Standards (IAS) and Vietnamese Accounting Standards (VAS) to find out similarities and differences. Thereby we would like to enhance the professional knowledge and also learn, get familiar with the legal provisions related to the field of accounting. Hoa Sen University Project 1 - Report ii TABLE OF CONTENT ABSTRACT i TABLE OF CONTENT ii ACKNOWNLEDGEMENTS iii PREFACE iv 1. INTRODUCTION 1 1.1. Introduction of Accounting Standards applying to "Inventories” 1 2. COMPARISON OF IAS 2 AND VAS 2 3 2.1. General Provisions 3 2.2. Contents of the Standard 3 3. CONCLUSION AND SUGGESTION 15 3.1. Conclusion 15 3.2. Suggestion 15 APPENDIX 16 REFERENCES 26 SUPPERVISOR‟S REMARK 27 Hoa Sen University Project 1 - Report iii ACKNOWNLEDGEMENTS First and foremost we offer our sincerest gratitude to our project supervisor, Mr. Nguyen Thanh Nam, who has supported us throughout our project with his professional guidance and valuable support. His willingness to give his time so generously has been very much appreciated. Special thanks should be given to Mr. Ho Sy Tuy Duc for his useful and constructive recommendations on this project. Hoa Sen University Project 1 - Report iv PREFACE During the twelve week of studying and researching, our group has synthesized the knowledge of the rules and principles from the two systems of International Accounting Standards (IAS) and Vietnamese Accounting Standards (VAS) which relate to "Inventories" Account. In the following, we will briefly introduce the two above-mentioned accounting standards system as well as the differences between them. Hoa Sen University Project 1 - Report 1 1. INTRODUCTION 1.1. Introduction of Accounting Standards applying to "Inventories” International Accounting Standards (IAS) is the harmonization of regulations, accounting principles and methods to be accepted, acknowledged a general practice among the countries. However, the harmony that cannot be forced all countries to comply with the accounting records and present financial statements in accordance with the provisions of International Accounting Standards. Because each country has conditions and different level of economic development, and management degree requirements are not quite the same. Therefore, based on the platform of International Accounting Standard system to develop and promulgate national accounting standards system is an indispensable need. Vietnamese Accounting Standards (VAS) is no exception to that practice. Before opening and integration, Vietnam has no accounting standards, only the accounting regimes. Accounting regimes are defined by the Ministry of Finance (MOF). They were mainly to guide the state-owned enterprises and cooperatives perform accounting work. At the end of 2001, MOF issued the first four Vietnamese accounting standards. By December 2005, the MOF has issued all 26 accounting standards. Within the scope of this report, the aim of this paper is to discuss about the comparison of Accounting Standards applying to “Inventory” of IAS and VAS to find the similarities and differences between them. Introduction of Accounting Standards “Inventories” Accounting standards are regulations and guidance on the accounting principles and methods as the basis for the accounting records and financial statements. Standards “Inventory” is built to regulate and guide the principles and methods of inventory accounting to reflect on the account a reasonably accurate basis for the preparation of reports finance. Hoa Sen University Project 1 - Report 2 International Accounting Standard No. 2 “Inventories” (IAS 2) is issued, published in 1975. Vietnamese Ministry of Finance based on the International Accounting Standards and the actual conditions issued Accounting Standards "Inventories" (VAS 2) dated December 31, 2001. On the basis of the content of the standards "Inventory" is defined in IAS 2 and VAS 2, this study will focus on the comparison of the similarities and differences between them. Hoa Sen University Project 1 - Report 3 2. COMPARISON OF IAS 2 AND VAS 2 For comparing IAS 2 and VAS 2, we make the basic contents: General Provisions, content standards, regulations on the establishment and presentation of financial statements 2.1. General Provisions Both standards “Inventory” of the International Accounting Standards and Vietnamese Accounting Standards all have the same purpose as regulations and guidance on the principles and methods of inventory accounting. Including: Define inventory; Accounting principles applied to inventory; Valuation of inventories; Method of calculating the value of inventory as a basis for accounting entries and financial statements. Standards “Inventory” of the Vietnamese accounting and international scope as follows: This standard applies to all inventory assets, including: o assets held for sale in the ordinary course of business (finished goods); o assets in the production process for sale in the ordinary course of business (work in process); o and materials and supplies that are consumed in production (raw materials); o For the service provider, inventories include the cost of services corresponding to deferred revenue. The principles are applied in accounting standards inventory: principle of prudence, principle of consistency and matching principle. 2.2. Contents of the Standard 2.2.1. Determination of Value of Inventories An inventory valuation allows a company to provide a monetary value for items that make up their inventory. Inventories are usually the largest current asset of a business, and proper measurement of them is necessary to assure accurate financial statements. If inventory is not properly measured, expenses and revenues cannot be properly matched and a company could make poor business decisions. Inventories are assets: Hoa Sen University Project 1 - Report 4 o Held for sale in the ordinary course of business o In the process of production for such sale o In the form of materials or supplies to be consumed in the production process or in the rendering of services. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Inventories encompass goods purchased and held for resale, for example, merchandise purchased by a retailer and held for resale, computer software held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or work in progress being produced, by the enterprise and include materials, maintenance supplies, consumables and loose tools awaiting use in the production process. Inventories do not include machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be irregular; such machinery spares are accounted for in accordance with Accounting Standard (AS) 10, Accounting for Fixed Assets. The valuation of inventory involves: o The establishment of physical existence and ownership; o The determination of unit costs; o The calculation of provisions to reduce cost to net realizable value, if necessary The resulting evaluation is then disclosed in the financial statements. These definitions appear to be very precise. We shall see, however, that although IAS 2 was introduced to bring some uniformity into financial statements, there are many areas where professional judgment must be exercised. Sometimes this may distort the financial statements to such an extent that we must question whether they do represent a „true and fair‟ view. [...]... upon sound professional advice and the organization‟s unique operating conditions 6 Hoa Sen University Project 1 - Report However, the differences between IAS2 and VAS2 are: VAS2 also has the same method of calculating value of inventories as IAS2 However, VAS2 has not eliminated the LIFO method and doesn‟t mention the Standard cost method For Last-in-first-out (LIFO): The cost of the inventory most... similarities and differences between International Accounting Standard and Vietnamese Accounting Standard i In their financial statements, the enterprises must present: o For Vietnamese Accounting Standard: 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... Recognizing the value of inventory and putting it into this period expenses have to ensure the principle of matching of costs and revenues 2.2.5 Effect of method of calculating value of inventories on a company’s financial statement Inventory valuation method that businesses apply can directly affect the Balance Sheet, Income Statement and Cash Flow Statement of the business Because the cost of goods sold...Hoa Sen University Project 1 - Report 2.2.2 Method of Calculating Value of Inventories According to the IAS 2, the acceptable methods of inventory valuation include FIFO, AVCO and standard cost a) First-in-first-out (FIFO) Inventory is valued at the most recent „cost‟, since the cost of oldest inventory is charged out first, whether or not this accords with the... While study and research, we have some concerns as follows: International Accounting Standard IAS 2 amended 12/2003 LIFO method (Last In - First out) in valuation of inventory Should VAS continue to apply or remove this method? 15 Hoa Sen University Project 1 - Report APPENDIX These are illustrative examples of Income Statement and Trial Balance according to International Accounting Standard 3G Company,... Vietnamese Accounting Standard: ii Where the enterprises compute the value of inventories by the Last-in, Firstout 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... according to Decision No 48/2006/QĐ-BTC issued 14 – 09 – 2006 by the Minister of Finance o Accounting form: Journal o Method of computing the value of inventories a Measuring inventory is based on original value principle b Method of computing the value of ending inventories: weighted average c Method of posting inventory: perpetual inventory method 21 Hoa Sen University Project 1 - Report Khai Vi Company,... inventory obsolescence Inventory obsolescence is when inventory is no longer salable Possibly due to too much inventory on hand, out of fashion or demand The true value of the inventory is seldom exactly what is shown on the balance sheet Often, there is unrecognized obsolescence o Starting from the precautionary principle is not rated higher than the value of the asset o The cause of the net realizable... to as cost of sales, consists of those costs previously included in the measurement of inventory that has now been sold and unallocated production overheads and abnormal amounts of production costs of inventories The circumstances of the entity may also warrant the inclusion of other amounts, such as distribution 13 Hoa Sen University v Project 1 - Report Some entities adopt a format for profit or loss... University Project 1 - Report In 2011 Dr 632: 4000 Cr 159: 4000 At the end of 2011 Dr 632: 3000 Cr 159: 3000 2.2.4 Recognition as an Expense IAS 2 specified items that are recognized as costs are: value of inventory is sold; adjustments of reducing net realizable value; loss of inventory; extraordinary waste; factory overhead costs are not disclosed VAS 2: When you sell inventory, cost of inventory sold