In business operations, investment assets play a vital role as the foundation enabling enterprises to generate profits. However, over time, assets inevitably suffer wear and tear and decline in value. In order to accurately reflect asset values and ensure transparency in financial statements, the depreciation of investment assets is essential. So, what is depreciation of investment assets? Let us explore this issue in detail in the article below.

I. The role of depreciating investment assets

The depreciation of investment assets plays a significant role in an enterprise’s business activities, particularly in financial management and the determination of reasonable expenses.

Depreciation not only enables enterprises to allocate the cost of fixed assets across accounting periods, but also directly affects business results and tax obligations. At the same time, it serves as a basis for enterprises to assess the efficiency of asset utilization and to formulate future investment plans.

II. Legal regulations on depreciation of investment assets

1. What is depreciation of investment assets?

Clause 9, Article 2 of Circular No. 45/2013/TT-BTC provides:

  • Depreciation of fixed assets means the systematic calculation and allocation of the original cost of fixed assets into production and business expenses over the depreciation period of such fixed assets.

Accordingly, depreciation of investment assets may be understood as the systematic allocation of the value of fixed assets throughout their useful utilization.

2. Why is depreciation of investment assets necessary?

Depreciation of investment assets is an important component of enterprise accounting and financial management. Depreciation not only reflects the natural wear and tear of fixed assets during their utilization, but also brings about several essential benefits, such as:

  • Accurately reflecting the actual value of assets;
  • Determining reasonable expenses for tax calculation purposes in accordance with regulations;
  • Enhancing effective asset management and long-term financial planning.

Thus, depreciation of investment assets is not only a legal requirement but also an effective financial management tool, enabling enterprises to operate transparently, efficiently, and sustainably.

3. Which depreciation expenses of investment assets are not deductible when calculating corporate income tax?

Pursuant to Clause 2, Article 6 of Circular No. 78/2014/TT-BTC, which lists non-deductible expenses when determining taxable income, certain depreciation expenses of investment assets are not deductible for corporate income tax purposes, including:

  • Expenses that do not satisfy all conditions stipulated in Clause 1 of this Article;
  • Depreciation expenses of fixed assets falling under one of the cases specified in Clause 2.2 of this Article;
  • Expenses for raw materials, materials, fuel, energy, and goods exceeding reasonable consumption norms;
  • Expenses incurred by enterprises in purchasing goods or services (without invoices but permitted to prepare a Goods and Services Purchase List using Form No. 01/TNDN attached to this Circular) where such list is not prepared together with payment documents to sellers or service providers in the cases specified in Clause 2.4 of this Article;
  • Expenses for rewards for initiatives or improvements where the enterprise has no specific internal regulations governing such rewards and no council for acceptance of initiatives or improvements;
  • The portion of expenses for leasing fixed assets exceeding the allocation level corresponding to the number of years for which advance payment is made by the lessee;
  • Other expenses as prescribed by law.

Accordingly, depreciation expenses of investment assets falling under the above cases are not deductible when calculating corporate income tax.

III. Certain questions on depreciation of investment assets

1. When does depreciation of investment assets commence?

Clause 9, Article 9 of Circular No. 45/2013/TT-BTC provides the principles for depreciation of fixed assets as follows:

  • The commencement or cessation of depreciation of fixed assets shall be effected from the date on which the fixed assets increase or decrease. Enterprises shall record increases or decreases in fixed assets in accordance with the prevailing enterprise accounting regime.

Accordingly, the commencement time for depreciation of investment assets is determined as above; specifically, depreciation of fixed assets begins from the date (based on the number of days in the month) on which the fixed assets increase or decrease.

2. How many methods are available for depreciating investment assets?

Clause 1, Article 13 of Circular No. 45/2013/TT-BTC provides the current methods of depreciating fixed assets, including:

  • Straight-line depreciation method;
  • Declining balance depreciation method with adjustment;
  • Depreciation based on output or production volume.

Accordingly, there are three methods for depreciating investment assets under the regulations.

3. How many times may an investment asset be depreciated at most?

Pursuant to Clause 1, Article 9 of Circular No. 45/2013/TT-BTC on principles for depreciation of fixed assets:

  • All fixed assets currently held by enterprises must be depreciated, except for the following fixed assets: Fixed assets that have been fully depreciated but are still used in production and business activities.

Accordingly, a fixed asset may only be depreciated once. Depreciation is applied in accordance with the depreciation time frame stipulated in Appendix 1 issued together with Circular No. 45/2013/TT-BTC. Where a fixed asset has been fully depreciated but continues to be used in production and business activities, depreciation shall no longer be applied.

4. Which investment assets are not subject to depreciation?

Pursuant to Clause 1, Article 9 of Circular No. 45/2013/TT-BTC (as supplemented by Clause 4, Article 1 of Circular No. 147/2016/TT-BTC), all fixed assets currently held by enterprises must be depreciated, except for the following fixed assets:

  • Fixed assets that have been fully depreciated but are still used in production and business activities;
  • Fixed assets that have not yet been fully depreciated but are lost;
  • Fixed assets managed by the enterprise but not owned by the enterprise (except for finance lease fixed assets);
  • Fixed assets that are not managed, monitored, or recorded in the enterprise’s accounting books;
  • Fixed assets used for welfare activities serving employees of the enterprise (except for fixed assets serving employees working at the enterprise, such as mid-shift rest houses, mid-shift canteens, changing rooms, toilets, clean water tanks, parking areas, medical rooms or stations for medical examination and treatment, vehicles for transporting employees, training and vocational facilities, and housing for employees invested in and constructed by the enterprise);
  • Fixed assets derived from non-refundable aid after being handed over by competent authorities to enterprises for scientific research purposes;
  • Intangible fixed assets being long-term land use rights with land use fees paid or lawfully transferred long-term land use rights;
  • Fixed assets classified as type 6 as prescribed in Clause 2, Article 1 of this Circular, which are not subject to depreciation but only require detailed records to monitor annual wear and tear value of each asset, and the capital source forming the assets shall not be reduced.

Accordingly, the above-mentioned fixed assets are not subject to depreciation.

5. How may depreciation of investment assets be adjusted when assets are damaged or liquidated?

Clause 4, Article 9 of Circular No. 45/2013/TT-BTC provides: Where fixed assets that have not been fully depreciated are lost or damaged beyond repair or recovery, enterprises shall determine the causes and the compensation responsibilities of the collectives or individuals causing such loss or damage. The difference between the remaining value of the assets and the compensation paid by the responsible organizations or individuals, compensation paid by insurance agencies, and recovered value (if any) shall be offset by the enterprise using the financial reserve fund. Where the financial reserve fund is insufficient to cover such differences, the shortfall may be included as reasonable expenses of the enterprise when determining corporate income tax.

Accordingly, where fixed assets are damaged beyond repair or recovery, depreciation shall be handled in accordance with the above regulations.

IV. Legal consulting services on depreciation of investment assets

The above is NPLaw’s article on the current regulations regarding depreciation of investment assets. With a team of experienced lawyers and legal professionals, NPLaw provides reputable and professional legal services, ensuring the best protection of clients’ lawful rights and interests. Should you require legal support, please contact NPLaw for consultation and assistance.