IAS 16 — Property, Plant and Equipment.

SUBJECT: FINANCIAL REPORTING

STUDENTS’ NAMES : HOANG XUAN MAI ( LEADER)

NGUYEN LINH CHI
DINH THI MAI PHUONG
CLASS : BIFA 9B
SUPERVISOR : DANG THI TRA GIANG

Hanoi, October 2024

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 Table of Contents
1. Definition of tangible asset......................................................................................4

2. Scope of use of IAS 16........................................................................................... 4

3. The criteria for recognition.......................................................................................4

4. Related concepts:................................................................................................... 4

5. Initial measurement :...............................................................................................5

a. For purchased assets :........................................................................................5

b. For self-constructed assets:.................................................................................6

6. Subsequent Measurement :....................................................................................7

a. Cost Method :...................................................................................................... 7

b. Revaluation Method:............................................................................................8

7. Depreciation............................................................................................................ 8

a. Straight line method:............................................................................................8

b. Reducing balance method:..................................................................................9

c. Unit of production method:...................................................................................9

8. Impairment.............................................................................................................. 9

9. Derecognition........................................................................................................10

10. Disclosure........................................................................................................... 12

a. Each class of PPE.............................................................................................12

b. Additional disclosures:.......................................................................................12

c. Revalued assets................................................................................................ 12

11. Compare IAS 16 with VAS 03 and Circular No. 45.............................................13

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 Introduction

The recognition, measurement, and presentation of property, plant, and equipment

(PPE) in financial statements are governed by International Accounting Standard 16,
or IAS 16. Companies must adhere to this standard in order to guarantee
consistency and transparency in the reporting of their fixed assets, which are crucial
for the manufacturing of goods, the rendering of services, or administrative tasks.
IAS 16 offers a trustworthy representation of a company's financial health by giving
companies precise criteria for accounting for their long-term assets. The definition of
tangible assets, the area of application of IAS 16, recognition criteria, associated
concepts, initial and subsequent measurement, depreciation techniques, asset
revaluation rules, and complicated assets are some of the main components of IAS
16. This framework ensures that companies appropriately manage and report the
value of their physical assets over time.

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 Content

1. Definition of tangible asset

All facets of PPE accounting are covered under IAS 16. An organization's tangible
non-current assets, known as property, plant, and equipment (PPE), are used for
administrative or production-related functions. thought to be utilized for a number of
periods (sometimes depending on corporate turnover).

2. Scope of use of IAS 16

Property, plant, and equipment accounting is governed by IAS 16 unless another

standard permits an alternative approach.
IAS 16 isn't applicable to:

- At the intended point of sale, property, plant, and equipment are stored.

- Biological assets in the agricultural sector.

- Documents for survey and assessment of mineral assets.

- Rights to exploit minerals and minerals.

3. The criteria for recognition

Machinery and equipment factories are recognized when they simultaneously satisfy:

- Future economic benefit: high possibility of obtaining future economic benefits

from using that asset .

- Cost reliably measured: asset value must be determined reliably.

Both costs incurred at the time of initial recognition and expenditures incurred later
are subject to these requirements. Subsequent expenses are not recognized based
on distinct criteria.

4. Related concepts:

- The cost of an asset is the sum of money or cash equivalents paid or the fair
market value of any additional consideration provided at the time of construction or
purchase.

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- After subtracting the anticipated costs of disposal, residual value is the net amount
that an entity anticipates receiving for an asset at the end of its useful life.

- The amount at which an asset is recorded in the SOFP after any cumulative
depreciation and impairment loss has been subtracted is known as the carrying
amount.

- The amount that can be recovered is the greater of the asset's fair value less the
costs of disposal and its current worth.

- At the measurement date, fair value is the amount that would be obtained in an
orderly transaction between market participants to sell an asset or transfer a liability
(willing parties – arm's length transaction; ifrs 13).

- The negative difference between the asset's book value (carrying amount) and
recoverable value (recoverable amount) is known as impairment loss.).

5. Initial measurement :

The historical cost principle in accounting requires assets to be recorded according

to the actual value that the business paid to acquire that asset. Depending on the
type of property (purchased property or self-built property), the method of calculating
the original price will be different. (Nguyen, 2024)

a. For purchased assets :

Purchased assets are assets that a business purchases from a third party. When
recording assets purchased from outside, the total cost to be capitalized includes:

● Purchase price (X): This is the amount the business pays to buy the asset from
the supplier. The purchase price may or may not include taxes, depending on
whether taxes are deductible or not.

- Trade discount/rebate (minus X): The amount of the discount is subtracted

from the purchase price if the provider is offering a promotion or discount.
This implies that the company simply keeps track of the actual amount paid.

- Import duties and non-refundable taxes (X): These taxes are amounts
businesses must pay when purchasing goods from abroad or purchasing

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 assets for which taxes are not deductible. They are added to the property
value.

- Directly related costs (X): These are costs incurred directly related to putting
the asset into use, including:

+ Site preparation costs: Costs to clean and prepare the area for asset
installation.

+ Initial transportation costs: Costs to transport assets from the place of

purchase to the business.

+ Installation and commissioning costs: Includes costs to assemble and

test whether the asset operates properly.

+ Cost of hiring an expert: The cost of hiring a professional to install or

test the property will also be included in the property's worth.

- The preliminary cost estimate for site restoration and disassembly (X): If the
asset needs to be dismantled after use, or the site needs to be restored to its
original state, the estimated costs This must also be noted from the
beginning.

→ Total capitalized costs (XX): is the sum of the aforementioned expenses

and will represent the asset's book value. The asset will then steadily lose
value during the course of its use. (Nguyen, 2024)

b. For self-constructed assets:

Self-constructed assets are assets that businesses build themselves instead of

purchasing them. When recording this asset, total costs include:

- Direct costs (X): Includes raw material costs and direct labor costs involved in
the asset construction process. These are costs incurred directly in building
the asset.

- General costs allocated to assets (minus X): These are the general costs of
the business (such as management costs, equipment maintenance costs,

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 electricity and water) allocated to the asset construction project . However,
only reasonable and relevant costs will be counted.

→ Total Capitalized Costs (XX): This represents the entire amount spent
on the asset's construction and will serve as the asset's starting value in
the accounting records.

* Important note: Abnormal costs, such as costs due to incidents, wasted materials
or ineffective labor, will not be capitalized. They have to be documented as expenses
for the term in which they are incurred. (Nguyen, 2024)

6. Subsequent Measurement :

In subsequent accounting periods after the tangible fixed assets (Property, Plant,
and Equipment - PPE) are initially recorded, carrying value of the asset can be
adjusted by one of two methods: cost method and revaluation method. (Nguyen,
2024)

a. Cost Method :

This method maintains the asset value at its original cost and is adjusted for
depreciation and impairment losses. The formula for calculating book value is as
follows: (Nguyen, 2024)

- Cost ( X) : This is the initial value of the asset when it is first recorded.

- Accumulated Depreciation (minus X) : Is the total value that has been depreciated
over previous accounting periods.

- Accumulated Impairment Loss (minus X): If the asset is reduced in value (for
example due to damage, deterioration in quality), this amount will be subtracted from
the book value.

→ Carrying Amount (XX) : Is the actual remaining value of the asset on

accounting books after deducting depreciation and impairment losses.
This is the value that businesses continue to use for depreciation in the
following periods.

For example:

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- The initial purchase price of the asset is 100 million VND.
- Accumulated depreciation after 3 years is 30 million VND.
- The decrease in asset value is 10 million VND.
→ The book value of the asset is:
100 million - 30 million - 10 million = 60 million VND.
b. Revaluation Method:

This method adjusts the value of the asset based on the fair value at the time of
revaluation, instead of maintaining the original value. It is appropriate when the fair
value of the asset can be determined reliably. Formula to calculate book value using
this method: (Nguyen, 2024)

- Fair value at the date of revaluation ( X) : This is the value of the asset estimated
according to the market or other objective standards.

- Accumulated depreciation (minus X): Similar to the original cost method, the
depreciation value calculated up to the time of revaluation will be subtracted .

- Accumulated Impairment Loss (minus X): If there is an impairment loss, this

amount will also be subtracted from the fair value.

→ Carrying Amount (XX): Is the actual value of the asset after revaluation,
depreciation and deduction of impairment losses.

For example:
- Fair value at the time of revaluation is 150 million VND.
- Accumulated depreciation is 30 million VND.
- Decrease in value is 20 million VND.
→ Book value after revaluation:
150 million - 30 million - 20 million = 100 million VND.
7. Depreciation.

a. Straight line method:

- The depreciable amount is charged in equal installments to each reporting period

over the useful life of the asset (Đặng, n.d.)

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 Cost of asset - Residual value
- Annual calculation =
Useful Life of the Asset in years

b. Reducing balance method:

- This method reflects that some new NCAs tending to lose more value in the earlier
years than the later years.

- Calculates the depreciation charge as a fixed percentage of the carrying amount.

- Annual calculation = Carrying Amount × Depreciation Rate (Đặng, n.d.)

c. Unit of production method:

- The unit of production method is a method of calculating depreciation based on the

usage of an asset. Unlike time-based depreciation methods (like straight-line or
declining balance), this method ties the depreciation expense to the actual use of the
asset, such as the number of units it produces or the hours it operates.

cost of asset − salvage value

- Depreciation per unit =
total estimated production units or hours

- Depreciation expense = depreciation per unit × number of units produced or hours

used (Đặng, n.d.)

8. Impairment

Impairment occurs when the recoverable amount of an asset is less than its carrying
amount, indicating the asset no longer provides expected economic benefits.
According to IAS 36 "Impairment of Assets," companies must assess their assets
regularly, especially when there are signs of potential impairment. (IAS 16 Property,
Plant and Equipment, n.d.)

Companies must assess impairment indicators at least at each reporting period.

These indicators may include external factors such as a decline in the market value
of the asset, or internal factors such as the physical condition of the asset

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deteriorating. Additionally, negative changes in business operations related to the
asset are also potential indicators. (IAS 16 Property, Plant and Equipment, n.d.)

When there are indications of impairment, companies must determine the

recoverable amount of the asset, which is the higher of fair value less costs to sell
and value in use. Fair value is the amount the company can receive by selling the
asset, while value in use is the present value of the cash flows expected to be
generated by the asset in the future. (IAS 16 Property, Plant and Equipment, n.d.)

If the recoverable amount is lower than the carrying amount, an impairment loss
must be recognized in the income statement. If the asset has been revalued, the loss
is first offset against any revaluation surplus. (IAS 16 Property, Plant and Equipment,
n.d.)

In some cases, if the asset’s value recovers after being impaired, the company can
reverse the impairment loss. However, the reversal cannot exceed the carrying
amount of the asset that would have existed if no impairment had been recognized.
The reversal is recorded in the income statement, improving the company's financial
results (IAS 16 Property, Plant and Equipment, n.d.)

After impairment, the new carrying amount will be used for future depreciation
calculations, ensuring accurate reflection of the asset's value. (IAS 16 Property,
Plant and Equipment, n.d.)

Suppose a company owns a plant with a book value of $500,000. Due to a change in
technology, the plant is now valued in the market at $350,000. The value in use of
the plant is estimated to be $370,000. In this case, the recoverable amount is
$370,000 (value in use). Since the recoverable amount is less than the book value,
the company must record an impairment loss of $130,000 ($500,000 - $370,000).

9. Derecognition

Derecognition is the process of removing an asset from the balance sheet when it no
longer provides future economic benefits. This usually occurs when the asset is sold,
disposed of or retired. According to IAS 16, an asset must be written down when it is

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sold or when it is no longer expected to provide future economic benefits from its use
or disposal. Derecognition is required even if the asset is not physically disposed of
but is fully written down in terms of its ability to generate revenue or utility for the
business. (IAS 16 Property, Plant and Equipment, n.d.)

When derecognizing an asset due to disposal, any gain or loss is calculated as the
difference between the asset's carrying amount and the proceeds from disposal,
after deducting any related costs. The proceeds from the disposal can include cash
or other assets received. This gain or loss is usually recognized in the income
statement, but it is not considered part of the core business operations. (IAS 16 —
Property, Plant and Equipment, n.d.)

For example, if a company sells a piece of machinery that had a carrying amount of
$50,000 for $70,000, it would recognize a gain of $20,000 in profit or loss.

Additionally, if an asset is written off due to impairment or is no longer usable, the

company must recognize the corresponding loss. When the asset’s value falls to
zero and it can no longer be used, the asset will be removed from the balance sheet.
This derecognition ensures that the asset’s value is accurately reflected in the
financial statements. (IAS 16 Property, Plant and Equipment, n.d.)

For instance, if a company owns a vehicle that is completely destroyed in an

accident, and the vehicle's residual value is negligible, the company would remove
the vehicle from its balance sheet and recognize any residual value as a loss if the
insurance or salvage proceeds are less than the vehicle's carrying amount.

Partial derecognition is also applied when components of an asset are replaced or

upgraded. When a part of an asset is replaced, the old part must be derecognized,
and the cost of the new part is added to the asset’s value. If an entity is using the
revaluation model for PPE, derecognition follows a similar process as under the cost
model. However, there are specific considerations when an asset is derecognized,
any revaluation surplus related to that asset is transferred to retained earnings,
rather than recognized in the income statement. (IAS 16 Property, Plant and
Equipment, n.d.)

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Example of the derecognition process: Suppose Company X has a piece of
machinery that was originally purchased for $100,000, with accumulated
depreciation of $60,000. Therefore, the carrying amount of the machinery is $40,000.
The company sells the machine for $50,000 and the related selling costs are $2,000.

In this case, the net proceeds from disposal would be

$50,000 - $2,000 = $48,000. The gain on write-down is calculated as follows:
Gain = Net Proceeds from Disposal - Carrying Value
Gain = 48,000 - 40,000 = 8,000
This $8,000 gain would be recorded on the income statement as non-operating
income.
10. Disclosure

a. Each class of PPE

For each class of PPE, the financial statements must disclose:

- The measurement bases used to determine the gross carrying amount.
- The depreciation methods applied.
- The useful lives or depreciation rates used.
- The gross carrying amount and accumulated depreciation (including impairment
losses) at the beginning and end of the reporting period.
- A reconciliation of the carrying amount at the beginning and end of the period (IAS
16 Property, Plant and Equipment, n.d.)

b. Additional disclosures:

- Existence and amounts of restrictions on title and any PPE pledged as security for
liabilities.
- Amounts recognized for expenditures during construction of PPE.
- Contractual commitments for acquiring PPE.
If not separately presented in comprehensive income, disclose:
- Compensation received from third parties for impaired, lost, or disposed PPE
included in profit or loss.

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- Proceeds and costs related to non-ordinary items produced, along with the
corresponding line items in comprehensive income. (IAS 16 Property, Plant and
Equipment, n.d.)

c. Revalued assets

- Effective date of the revaluation.

- Involvement of an independent valuer.
- The carrying amount under the cost model.
- The revaluation surplus, including changes for the period and any distribution
restrictions.
- Impairment disclosures: additional information about impaired PPE beyond the
regular requirements. (IAS 16 Property, Plant and Equipment, n.d.)

11. Compare IAS 16 with VAS 03 and Circular No. 45

IAS 16 (International Accounting Standard 16), part of the International Financial

Reporting Standards (IFRS), allows for two accounting models: the cost model and
the revaluation model .

Tangible fixed assets VAS 03 (Vietnam Accounting Standards 03) are assets with
physical form held by enterprises for use in production and business activities in
accordance with the standards for recording tangible fixed assets.

Circular No. 45/2024/TT-BTC (Vietnam): this Circular provides for the general
method of pricing goods and services priced by the State as prescribed in Clause 2,
Article 23 of the Law on Prices. The method of pricing land and other goods and
services prescribed in Clause 3, Article 23 of the Law on Prices is under the authority
of the Minister, Head of the ministerial-level agency managing the sector or field or
submitted to the competent authority for promulgation.

Content IAS 16 VAS 03 Circular No. 45

Scope of use Tangible fixed Similar to IAS 16, it Serves as a guideline

assets are applies to fixed for implementing VAS
classified as long- assets used for 03, focusing on
term assets held production, trading, practical applications

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 for sale. or service provision. and compliance

Except for certain Applicable to

types: biological assets
● Assets held for related to
sale (covered Agriculture.
by IFRS 5). (Industrial crops like
● Biological rubber and coffee,
assets as well as breeding
(covered by livestock like dairy
IAS 41). cows and pigs, go
● Investment through a growth
property and reproduction
measured at process. Directly
fair value associated costs,
(covered by such as breeding
IAS 40). and planting, cannot
capture the value of
these unique
assets. IAS 41
requires biological
assets to be
recognized at Fair
Value Less
expenses to Sell,
but VAS 03
mandates
recognition at
historical cost,
which represents
the directly
connected
expenses of
breeding and
planting these
assets. As a result
of VAS 03,
biological assets
are not correctly
recorded in the
financial
statements.)

Purpose To establish the To provide a To clarify and

accounting framework for supplement VAS 03,
treatment for PPE, recognizing and detailing specific
focusing on measuring fixed requirements for asset

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 recognition, assets in Vietnam. valuation, depreciation
measurement, methods, revaluation,
depreciation, and and other related
impairment. practices.

Recognition of An asset is Similar to IAS 16, Reinforces the

assets recognized when assets must meet recognition criteria of
it is probable that the criteria of VAS 03 and introduces
future economic probable future a minimum value
benefits will flow economic benefits threshold for fixed
to the entity and and reliable assets to be
the cost can be measurement. recognized, specifically
measured reliably. VND 30 million
No minimum (approximately
threshold for the US$1,319).
recognition of
fixed assets.

Initial Assets are Similar to IAS 16, Aligns with the cost
measurement measured at cost, requiring initial principle, specifying
which includes: recognition at cost, the minimum value
Purchase price, including all threshold (VND 30
import duties, and expenses million) for fixed
any directly necessary to bring assets.
attributable costs the asset to its
(e.g., installation, intended use.
testing).

Subsequent Allows for two Primarily adopts the Provides specific

Measurement models: Cost Model for guidelines for
● Cost Model: subsequent revaluation, allowing it
Assets are measurement. only under certain
carried at cost Revaluation is conditions, such as
less allowed but is less significant changes in
accumulated common and market value or upon
depreciation subject to strict disposal.
and impairment conditions.
losses.
● Revaluation
Model: Assets
are carried at
fair value less
subsequent
accumulated
depreciation
and impairment
losses, with fair
value
determined by

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 a professional
appraiser.

Impairment Requires entities Similar provisions Reinforces the need

to assess exist; entities must for impairment
impairment assess impairment assessment, with
whenever there based on indicators. specific guidelines on
are indicators that The carrying how to conduct these
an asset may be amount should be assessments, similar
impaired. If the adjusted if to IAS 16.
carrying amount necessary, following
exceeds the the same principles
recoverable as IAS 16.
amount (higher of
fair value less Generally follows
costs to sell and the same approach
value in use), the as IAS 16, allowing
asset must be for reversals under
written down. specific conditions.

If the reasons for

impairment no
longer exist, the
impairment loss
can be reversed,
but not above the
asset's carrying
amount had no
impairment been
recognized

Land and land Land is classified Land is recognized Views land as an

use rights as a tangible fixed only as land use intangible fixed asset.
recognition asset. rights and classified
as an intangible
asset.

Depreciation Accepts various Similar methods are Specifies that fixed

methods, accepted, including assets must be
including: straight-line and depreciated over their
● Straight-Line declining balance. useful lives, which are
Method: Equal subject to limits set by
expense over Useful Life: Often regulations. It provides
the useful life. determined by detailed guidance on
● Declining norms set by the useful life estimation,
Balance Ministry of Finance, including minimum and
Method: Higher which may differ maximum limits for
expense in the from the entity's various asset
earlier years. estimates. Entities categories.
● Units of must adhere to

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 Production these norms unless
Method: Based a justified reason for
on usage. deviation is
provided.
Useful Life: Must
be determined
based on the
asset's expected
usage, and should
be reviewed at
least annually for
changes.

Disclosure Requires Mandates Details specific

Requirements comprehensive disclosures but may requirements for
disclosures, not be as extensive disclosures related to
including: as IAS 16. It fixed assets, ensuring
● Accounting requires entities to compliance with VAS
policies for disclose: 03. It emphasizes the
PPE. ● The accounting need for transparency
● Depreciation policies applied. in asset valuation,
methods used. ● The useful lives depreciation methods,
● Carrying of fixed assets. and any revaluations
amounts of ● Any changes in performed.
each class of accounting
PPE. estimates.
● Reconciliation ● Information on
of the carrying impairment
amount at the losses
beginning and recognized.
end of the
period.
● Details of any
revaluations
and the
methods used
to determine
fair value.

In summary, IAS 16, VAS 03 and Circular 45 all share the basic principles relating to
the accounting treatment of property, plant and equipment (PPE), but they differ in
their application, particularly in areas such as revaluation, minimum values for assets
and local regulations specific to Vietnam. Entities operating in Vietnam must adapt
these features to ensure compliance with local standards while remaining consistent
with international standards. Understanding these is essential for accurate financial

17
reporting and effective asset management, as they can have a significant impact on
an entity’s financial statements and overall financial position.

Conclusion
IAS 16 provides a comprehensive framework for the recognition, measurement,
depreciation, impairment, and derecognition of property, plant, and equipment. This
standard offers two different models—the cost model and the revaluation model—
allowing entities the flexibility to choose the approach that best reflects the economic
reality of their assets.

Proper application of IAS 16 ensures that financial statements accurately represent

an entity's asset base, enhancing transparency and supporting better decision-
making for stakeholders. Through clear disclosure requirements, IAS 16 enables
financial statement users to gain a better understanding of the asset situation and
operational performance of the entity.

In summary, IAS 16 is an essential tool that helps businesses effectively manage

their property, plant, and equipment, thereby improving competitiveness and
enhancing trust among investors and other stakeholders.

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 References

1. Đặng, G. (n.d.). Non current assets for students.

IAS 16 Property, Plant and Equipment. (n.d.). IFRS Foundation.

https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards/english/2022/

issued/part-a/ias-16-property-plant-and-equipment.pdf?bypass=on

2. IAS 16 — Property, Plant and Equipment. (n.d.). IAS Plus.

https://www.iasplus.com/en/standards/ias/ias16

3. Nguyen, T. (2024). [FR/F7: Tóm tắt kiến thức] Lesson 3: Tangible Non-current

Assets - IAS 16: Property, plant and equipment (Nhà xưởng, máy móc, thiết bị).

SAPP Knowledge Base. https://knowledge.sapp.edu.vn/knowledge/fr/f7-t

%C3%B3m-t%E1%BA%AFt-ki%E1%BA%BFn-th%E1%BB%A9c-lesson-3-tangible-

non-current-assets-ias-16-property-plant-equipment

4. Shira, D. (2022, January 6). IFRS and VAS Part 2: Presentation of Balance

Sheets. Vietnam Briefing. https://www.vietnam-briefing.com/news/ifrs-vas-part-2-

presentation-balance-sheets.html/

5. Viindoo Technology JSC. (2024, May 28). IFRS vs VAS (Part 2): Gaining Insight

into the differences. Viindoo. https://viindoo.com/blog/business-management-3/ifrs-

vs-vas-part-2-gaining-insight-into-the-differences-2172

Contribition percentage
Hoàng Xuân Mai (leader): 34% (Slide, Content: derecognition, disclosure, compare)
Nguyễn Linh Chi: 33% (Subsequent measurement, depreciation, impairment)

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Định Thị Mai Phương: 33% ( definition, scope of use, the criteria for recognition,
related concept, initial measurement )

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