1. The business does not meet the going concern assumption
The business is considered to be out of business. If the term of operation expires but there is no application for extension of operation, it is expected to terminate the operation. A specific document must be sent to the competent authority. Or being required by a competent authority to dissolve, go bankrupt, or terminate its operation. Within 12 months from the date of preparation of the financial statement. For enterprises with a normal production and business cycle of more than 12 months. It’s no more than a normal business cycle.
2. Where the Enterprise is still considered a going concern
The equitization of a State-owned enterprise into a joint-stock company. The financial treatment of equitization is a special case. Although it is necessary to conduct a business re-valuation, re-assess assets and liabilities. But in essence, the enterprise still maintains production and business activities as usual.
The change in the form of business ownership. For example converting a limited company into a joint stock company or vice versa.
The transfer of an independent accounting entity. To become a unit without legal status for dependent accounting or vice versa. For example turning a subsidiary into a branch or vice versa.
3. Where the Enterprise does not meet the going concern assumption
Enterprises still have to fully present the financial statements and clearly state:
– The balance sheet applies to enterprises that do not meet the going concern assumption.
– The income statement applies to enterprises that do not meet the going concern assumption.
– The statement of cash flows applies to businesses that do not meet the going concern assumption.
– Notes to the financial statements apply to enterprises that do not meet the going concern assumption.
(The enterprise report samples refer to Appendix 2 issued together with Circular 200/2014/TT-BTC)
4. In case the assumption of continuous operations is no longer appropriate at the time of reporting
In this case, the Enterprise must reclassify long-term assets and long-term liabilities. Into short-term assets and short-term liabilities.
Enterprises must reevaluate all assets and liabilities. Except in cases where a third party inherits the rights to the property. Or obligations for debt must be paid at book value. Enterprises must record in accounting books according to revaluation. Before preparing the Balance Sheet
In specific cases, enterprises do not have to re-evaluate assets and liabilities. And principles in reassessment. Generally stipulated in Points 5.1 and 5.2, Clause 5, Article 106, Circular 200/2014/TT-BTC.
When the assumption of continuous operations is no longer appropriate. Businesses need to handle some financial issues. Specific financial issues are generally regulated in Clause 7, Article 106, Circular 200/2014/TT-BTC.
And Enterprises need to explain in detail their ability to generate cash and pay debts. Equity for shareholders. And explain the reason for the incomparability between information of the reporting period and information of the comparison period. Specifically, explanations are generally prescribed in Clause 8, Article 106, Circular 200/2014/TT-BTC.
5. Accounting method for some asset items when the enterprise does not meet the assumption of continuous operation
Provisioning or assessment of asset losses. Decreased directly in the book value of the asset. Do not make provision on Account 229 – “Provision for asset loss”
Calculating depreciation or recording losses of convertible assets, investment real estate. Decreased directly in the book value of the asset. Do not use account 214 to reflect accumulated depreciation.
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