BANKING ACADEMY ACCOUNTING FALCUTY ------------------------ GRADUATION THESIS COMPLETION OF ACCOUNTING FOR REVENUE AND COSTS IN CONSTRUCTION CONTRACT IN HO CHI MINH MUSEUM CONSTRUCTION JOINT STOCK COMPANY Student : Pham Hong Hanh Class : K19-CLC-KTA Student ID : 19A4020215 Course : 2016 - 2020 Instructor : PhD. Nguyen Bich Ngoc Ha Noi, May - 2020 COMMITMENT I assure that I have done this graduate thesis, the analytical data in the subject is accurate and truthful, and all references from other sources are correctly cited and comprehensive in field of inquiry. Please take responsibility for this graduate thesis. Student Pham Hong Hanh i ACKNOWLEDGEMENTS I would like to express my sincere gratitude to Ho Chi Minh Museum Construction Joint Stock Company for letting me to finish my internship course at the late of 2019 and from April to May 2020 here and provided me a lot of information about the company.
Besides, I also say thank my supervisor, Ms. Tran Thi Hoa – chief accountant of the company who was willing to answer all question for my thesis. It was a pleasure working with her and I was able to develop myself with such support and encouragement. In addition, I am simultaneously graceful to Banking Academy, especially the Accounting department.
I would love to show my appreciation to all teachers who have taught me for 4 years in Banking Academy for their passionate on conveying knowledge to students, during all of your school studies, particularly during the writing of this thesis. The knowledge gained in the learning process not only helps me to achieve good results in this career phase, but also as a tool to help me get more confident and comfortable into my life. The study might have some shortcomings, I would love to receive constructive feedback to help me to supplement, fix and improve. Moreover, I am still profoundly indebted and truly grateful to PhD.
Nguyen Bich Ngoc, my instructors for always being there during my thesis writing for continuous guidance, useful advice, compassion, patience and encouragement. Lastly, I would like to express my deepest gratitude to my family and friends have always been a tremendous source of support and inspiration for me during this course. ii TABLE OF CONTENT COMMITMENT. ii TABLE OF CONTENT .iii LIST OF ACRONYMS.
vi LISH OF TABLE AND ILLUSTRATION. 1 CHAPTER 1 THEORETICAL BASIS FOR ACCOUNTING FOR REVENUE AND COSTS IN CONSTRUCTION CONTRACT .1 Overview on construction industry .2 Overview on construction contract .3 Accounting for revenue and costs in construction contract .1 Accounting for revenue .2 Accounting for costs .3 Presentation of revenue and costs on financial statement based on VAS 15. 23 CHAPTER 2 CURRENT ISSUES OF ACCOUNTING REVENUE AND COSTS OF CONSTRUCTION CONTRACT IN HO CHI MINH MUSEUM CONSTRUCTION JSC .1 Overview of Ho Chi Minh Museum Construction JSC .1 Formation and development .4 Some performance indicators of the Company .2 Organizing accounting work at Ho Chi Minh Museum Construction JSC .1 Organizational accounting department structure .3 Current issues of accounting revenue and costs of construction contract in Ho Chi Minh Museum Construction JSC .1 Current issues of construction contracts of the Company.2 Current issues of accounting for revenue in construction contracts of the Company .3 Current issues of accounting for costs in construction contracts of the Company .4 Current issues of the presentation of information related to the construction contract on the financial statements at the Company .4 Assess accounting situation for revenues and costs at the Company. 58 CHAPTER 3 COMPLETION OF ACCOUNTING FOR REVENUE AND COSTS IN CONSTRUCTION CONTRACT IN HO CHI MINH MUSEUM CONSTRUCTION JSC .1 Solutions to complete revenue and cost accounting of construction contracts according to VAS 15 in Ho Chi Minh Museum Construction JSC .1 For construction contract .4 For presentation on FS .2 Applying new accounting standards IFRS 15 - Revenue from Contracts with Customers in accounting of construction contract .3 Conditions for implementing solutions and recommendations .1 From the State and the authorities .2 From Ho Chi Minh Museum Construction JSC.
119 v LIST OF ACRONYMS Dep. Department FS Financial statement IFRS International Financial Reporting Standards JSC Joint stock company VAS Vietnam Accounting Standard VAT Value added tax vi LISH OF TABLE AND ILLUSTRATION Table 2.1 – Debt-to-assets ratio of the Company.2 - Net profit margin of the Company .1 - Organizational Structure of Ho Chi Minh Museum Construction JSC .2 - Organizational accounting department structure. Rationale The basic construction industry is a key economic sector in which accounts for a great portion of the country's economy. Especially for Vietnam, a developing nation, construction works are on the rise in both major cities and small towns, attracting the investment attention of many organizations and businesses.
The construction industry in Vietnam is also facing a challenging competitive environment due to foreign investment. On the other hand, with capital expenditure for construction accounting for a large proportion of the total state budget as well as the budget of the entities, investment in construction is also a very significant and sensitive field. Due to the peculiarities of the construction industry, it is even more difficult to account the revenues and costs of construction contracts, which has already been complicated. On the other hand, in fact, the accounting of revenues and costs between construction enterprises has not really been consistent, not reflected in a timely and accurate information about revenues and expenses of construction activities, then cause difficulties for the management, inspection and auditing process, at the enterprises, the managing agencies and the related parties.
Although the Ministry of Finance had issued a relatively complete system of Vietnamese Accounting Standards (VAS), consistent with international accounting standards and practices, including VAS 15 - Construction contracts for construction contract accounting and financial statements (FS) of contractors from January 2003, however, until now most of the construction enterprises have not yet mastered proficiency. In the international economic integration era, accounting in entities that follow a common standard as VAS and in long-term is International Financial Reporting Standards (IFRS) is an indispensable need. Therefore, the application of VAS 15 – Construction contract into the accounting of revenues and costs of construction activities in construction enterprises is extremely necessary and urgent recently. Coming from those reasons, the author select the topic: 1 "Completion of accounting for revenue and costs in construction contract in Ho Chi Minh Museum Construction Joint Stock Company" as a graduate thesis.
Literature review Discussing the topic of revenue accounting and construction contract costs, there are several writers who have done this work through graduation thesis, master thesis, and so on. The author would like to draw some conclusions from the studies as follows, because of restricted conditions: Author Nguyen Dinh Huu (1991) studied about "Socialist business accounting and the renovation of accounting organization in construction enterprises", presented theories on Socialist Business Accounting and applied it to guidelines for revolutionary accounting in construction companies that suit the market-oriented economy. The topic's recommendations, however, are very relevant in that sense, but with the current socio-economic growth, evolving accounting policies and regimes, legal structure on accounting reform, the theme's conclusions need to be updated. In 2001, author Truong Thi Thuy studied "Completing the accounting of production costs and calculating the cost of products in state-owned enterprises under the construction of bridges and roads".
In this thesis, it have systematized the entire accounting theory of production costs and calculated product prices from the perspective of financial accounting such as cost classification, cost aggregators and product cost calculation, method of gathering and accounting for production costs, calculating product prices. The author Truong Thi Thuy focused on researching a field of construction of bridges and roads, the author also considered and evaluated scientifically and practically on production costs and cost of construction products. Thereby bringing devise professional and organizational solutions to improve the organization of accounting of production costs and calculate product prices in the construction of bridge and road enterprises. Doctoral thesis of author Le Thi Dieu Linh (in 2011) studied "Completing accounting work to collect production costs and calculating product prices in civil construction enterprises".
The thesis has found: systematize and analyze theoretical issues about the nature of costs and product costs in construction enterprises, consider 2 production costs and product prices in terms of financial accounting. The thesis also presents the specific characteristics of the construction industry on which analysis of major impacts of products, production and management mechanisms on production cost accounting and price calculation in civil construction enterprises. The thesis generalizes and analyzes the basic limitations on cost and price accounting in civil construction enterprises in the current conditions, it has not met the new requirements, from which the dissertation analyzes and gives some suggestions to improve the accounting of production costs and calculate production costs in civil construction enterprises in Vietnam. In particular, with regard to the identification of income from the perspective of foreign writers, work has explored two methods of early and late recognition of revenue, which are the completed contract method and the percentage of completion method.
Arnegger and Hofmann (2007) in study: “Periodization of success components to control long-term assignments” examine input and output-based measures to access the degree of completion used in the percentage-of-completion method and to decide that their preferability depends on the manager’s productivity and the risks incurred during the respective periods. Author Michael Dobler (2008) with article: “Rethinking revenue recognition – the case of construction contracts under International Financial Reporting Standards” has shown ways to approach revenue recognition from different perspectives of construction contracts, such as “revenue-expense approach” (under IAS 11 – Construction contract) or “asset-liability approach”. However, his point of view seems to be not updated as nowaday situation where IFRS 15 – Revenue with Contracts with customers is applied officialy. “The role of revenue recognition in performance reporting” by Alfred Wagenhofer (2014) offers a comprehensive analysis of the principles of recognition of sales and identification of income or loss, and how they produce knowledge for consumers of financial statements to understand performance for the company by analyzing the role of revenue in informing capital markets and in performance evaluation and reviewing studies on revenue management.
Then explaining 3 fundamental concepts of revenue recognition developed in academic literature on the basis of the risk economics involved in the earnings cycle. The writers have so far tended to concentrate on more specific areas of business and development, the research sphere is increasingly focusing on specific parts of financial accounting, such as master thesis of author Nguyen Thi Thanh Loan (2014) about: “Finalize the accounting of the revenue and expenses of construction contracts of hydroelectric construction enterprises” going into researching financial accounting and management accounting of construction contracts of hydropower construction companies in the North of Vietnam. This study has recently followed VAS 15 to improve revenue and expenses as well as explain the management accounting issues of these businesses. Most of the construction enterprises conduct construction activities through contracts, in order to survive and development, businesses need to pay special attention to the revenue and cost accounting of construction contracts.
Based on its nature and functions, accountants can provide sufficient and truthful information on the situation of capital use, costs of works and revenue of works. Since then, administrators have introduced cost-saving measures to lower production costs in the condition that it does not reduce the quality of works, improve production and business efficiency. At the same time, accounting information is also a basis for the State to control construction activities and collect taxes. Therefore, scientific accounting, reasonable revenue and expenses of the construction contract will contribute to the correct accounting, sufficient construction costs, accurately determine the results of the business.
From the studies both in Vietnam and abroad, we can see that the authors have had a very in-depth study of recording revenue and costs for contracts.