Learn: When is it necessary to re-evaluate fixed assets? Documents, procedures & accounting methods for re-evaluating fixed assets, liquidating fixed assets, converting fixed assets to tools and equipment.
I. Cases of revaluation of fixed assets
Cases of revaluation of fixed assets (FA) include:
- When there is a decision of a competent state agency;
- When a business changes its organizational structure, changes its ownership, or changes its business form: division, separation, merger, consolidation, or equitization. Or performs the transactions of selling, contracting, leasing, or converting a limited liability company into a joint stock company and vice versa;
- When using assets to invest outside the business;
- When businesses need to invest and upgrade fixed assets;
- When dismantling one or several parts of a fixed asset that are under the management according to the standards of a tangible fixed asset.
II. Procedures, documents and accounting methods for revaluation of fixed assets
1. Procedures and documents for revaluation of fixed assets
According to the decision of competent authorities, the director establishes an inventory council to re-evaluate fixed assets.
When there is a change in the original price of fixed assets, the enterprise must make a record clearly stating the basis for the change. From there, re-determine the original price, remaining value of the asset in the accounting books, accumulated depreciation, time of use of fixed assets and proceed to account according to regulations.
2. How to account for revaluation of fixed assets
➤ In case the re-evaluated fixed asset has a higher value than the value of the fixed asset being evaluated, the following accounting shall be performed:
Debit account 211, 213, 217 – Original price of fixed assets (adjusted increase in original price);
Credit account 214 – Depreciation of fixed assets (adjusted increase in depreciation value);
Credit account 412 – Difference in revaluation of fixed assets (increased residual value).
➤ In case the re-evaluated fixed asset has a value lower than the value of the fixed asset being evaluated, the following accounting shall be performed:
Debit account 214 – Depreciation of fixed assets (adjusted depreciation value);
Debit account 412 – Difference in revaluation of fixed assets (adjusted residual value);
Credit account 211, 213, 217 – Original price of fixed assets (adjusted original price).
➤ At the end of the fiscal year, handle the difference in asset revaluation according to the decision of the competent authority or agency.
If account 412 has a credit balance, the enterprise decides to add owner’s investment capital, perform accounting:
Debit account 412 – Difference in revaluation of fixed assets;
Credit account 411 – Owner’s equity.
If account 412 has a debit balance, the enterprise decides to reduce the owner’s investment capital, perform the accounting:
Debit account 411 – Owner’s capital;
Credit account 412 – Difference in fixed asset valuation.
For example:
On January 1, 2019, ABC Company purchased a generator worth VND 350,000,000 (excluding VAT) with a useful life of 8 – 15 years and was depreciated using the straight-line method with an estimated depreciation period of about 10 years.
On December 31, 2022, after a period of use, the company decided to upgrade the generator, the total cost of the upgrade is 80,000,000 VND, determining the remaining depreciation period is 8 years. The fixed asset after being upgraded will be put into use from January 1, 2023.
➥ Accountants process and perform accounting entries to revalue fixed assets as follows:
- Before revaluation of fixed assets:
- Original price of fixed assets: 350,000,000 VND;
- Annual depreciation: 350,000,000 / 10 = 35,000,000 VND;
- Accumulated depreciation of assets (from January 1, 2019 to December 31, 2022, i.e. 4 years) is: 35,000,000 x 4 = 140,000,000 VND;
- Remaining value of fixed assets: 350,000,000 – 140,000,000 = 210,000,000 VND.
- After upgrading, perform fixed asset revaluation entries:
- The value of fixed assets after repair is: 210,000,000 + 80,000,000 = 290,000,000 VND;
- Annual depreciation from January 1, 2023 onwards: 290,000,000 / 8 = 36,250,000 VND.
- Accounting for revaluation of fixed assets:
Debit account 211: 80,000,000;
Credit account 214: 10,000,000 (*);
Credit account 412: 70,000,000; - At the end of the year, proceed to re-evaluate fixed assets:
Debit account 412: 70,000,000;
Credit account 411: 70,000,000.
(*): (36.250.000 – 35.000.000) x 8 = 10.000.000
III. Cases of converting fixed assets into tools and equipment
When there are current fixed assets that no longer meet the conditions to be recorded as fixed assets according to accounting standards or when the enterprise re-evaluates fixed assets (according to the decision of competent authorities) and the fixed assets no longer meet the conditions to be recorded as fixed assets, it is necessary to convert fixed assets into tools and equipment (CCDC).
How to account for converting fixed assets to CCDC:
➧ In case fixed assets are not used:
Debit account 153: Increased value of fixed assets;
Credit account 211: Original price of fixed assets.
➧ In case fixed assets are being used in departments, if the remaining value of the fixed assets is small, it will be fully calculated into the production and business costs of the department using the fixed assets:
Debit account 623, 627, 641, 642: Remaining value of fixed assets (Circular 200);
Debit account 154, 6412, 6422: Remaining value of fixed assets (Circular 133);
Debit account 214: Accumulated depreciation;
Credit account 211: Original price.
➧ In case fixed assets are being used in departments, if the remaining value of the fixed assets is large, it is necessary to gradually allocate them to the production and business costs of the department using the fixed assets:
- Record the transfer of fixed assets into tools and equipment for allocation:
Debit account 242: Remaining value;
Debit account 214: Accumulated depreciation;
Credit account 211: Original price of fixed assets.
- Periodically allocate the value of CCDC into business costs for each department:
Debit account 623, 627, 641, 642: Value of fixed assets allocated during the period (Circular 200);
Debit account 154, 6421, 6422: Value of fixed assets allocated during the period (Circular 133);
Credit account 242: Value of fixed assets allocated during the period.
For example:
On January 1, 2022, ABC Company changed the form and revalued the projector used in the director’s office to a tool. The projector has an original price of VND 35,000,000, the remaining value is VND 21,000,000. Based on the asset revaluation record or conversion decision, the accountant makes the following entry:
➥ Entry 1: Decrease fixed assets
Debit account 242: 21,000,000;
Debit account 214: 14,000,000;
Credit account 211: 35,000,000.
➥ Entry 2: Periodically, allocated to business expenses, allocation period 12 months:
Debit account 642: 1,750,000;
Credit account 242: 1,750,000.
IV. Procedures, documents and accounting methods for liquidation and sale of fixed assets
1. Procedures and documents for liquidation and sale of fixed assets
When fixed assets are no longer needed or are deemed ineffective, the enterprise will proceed to sell or liquidate the fixed assets.
When selling or liquidating tangible fixed assets, the enterprise must make a decision on liquidation or sale, establish a council for liquidation or sale of fixed assets. This council is responsible for organizing the liquidation or sale of fixed assets in accordance with procedures and making a record according to the prescribed form.
2. Accounting entries for liquidation of fixed assets
Based on the minutes of liquidation and sale of fixed assets, invoices and documents related to the sale and liquidation of fixed assets, the accountant performs the accounting for liquidation of fixed assets:
➤ Entry 1: Record revenue from liquidation and sale of fixed assets
Debit account 131: Accounts receivable from customers;
Credit account 711: Income from liquidation and sale of assets;
Credit account 3331: VAT.
➤ Entry 2: Record decrease in liquidated and sold fixed assets
Debit account 214: Accumulated depreciation;
Debit account 811: Remaining value after (original price minus accumulated depreciation);
Credit account 211: Original price of fixed assets.
➤ Entry 3: Record expenses for liquidation and sale of fixed assets
Debit account 811: Other expenses;
Debit account 1331: Deductible VAT;
Credit account 111, 112, 331, 334, 338: Total payment value.
For example:
ABC Company transfers a warehouse to XYZ Company. The warehouse has an original cost of VND 1,500,000,000, with accumulated depreciation of VND 500,000,000. According to the contract signed on January 1, 2022, the two parties agreed on a purchase price of VND 2,000,000,000 (excluding VAT, VAT 10%). The cost during the transfer process is VND 2,000,000. Based on the asset valuation report, the sales contract and the financial invoice, the accountant makes the following entry:
➥ Entry 1: Revenue recognition
Debit account 131: 2,200,000,000;
Credit account 711: 2,000,000,000;
Credit account 3331: 200,000,000.
➥ Entry 2: Decrease fixed assets
Debit account 811: 1,000,000,000;
Debit account 214: 500,000,000;
Credit account 211: 1,500,000,000.
➥ Entry 3: Selling expenses
Debit account 811: 2,000,000;
Credit account 111: 2,000,000.
>> See more: How to account for and calculate depreciation of used fixed assets.
V. Questions about accounting for liquidation of fixed assets & accounting for revaluation of fixed assets
1. How to handle when discovering lost fixed assets?
When a fixed asset is lost, it is necessary to investigate the cause, determine the responsible party and the direction of handling. When there is a decision to handle, a record is made. Based on the record and related documents, the accountant performs the accounting:
Debit account 214: Accumulated depreciation;
Debit account 811: If the company suffers a loss;
Debit account 111, 334, 1388: If the person responsible for the loss is identified and compensated;
Debit account 344: Deduct employee’s salary;
Debit account 411: If allowed to reduce equity;
Credit account 211: Original price.In case the cause is not clearly identified, the accountant records:
Debit account 214: Accumulated depreciation;
Debit account 1381: Remaining value;
Credit account 211: Original price.
2. How to handle revaluation accounting when fixed assets are invested as capital contribution?
If the enterprise re-evaluates fixed assets when contributing capital to invest in another unit or changing the form of ownership, the difference at this time is reflected in account 711 (if profit) or account 811 (if loss).
– In case the remaining value of the fixed asset is less than the value re-evaluated by the parties:
Debit account 222: Joint venture capital contribution;
Debit account 214: Accumulated depreciation;
Credit account 211, 213, 217: Original price of fixed assets;
Credit account 711: Other income (difference in increased fixed asset valuation).– In case the remaining value of the fixed asset is greater than the value re-evaluated by the parties:
Debit account 222: Joint venture capital contribution;
Debit account 214: Accumulated depreciation;
Debit account 811: Other expenses (difference in fixed asset valuation decrease);
Credit account 211, 213, 217: Original price of fixed assets.