ITA Group answers question of current accounting policy
ITA Group answers question of current accounting policy.
ITA GROUP answers the question of its current accounting policy from investor Thuy Duong at email address: pacific9@gmail.com. The question is as follows:
“I am an individual investor. After reading ITA Group‘s financial statement for the second quarter of 2008, I noticed a change in its accounting method. According to the explanation, I suppose that, in example, Company signed a land lease/sale contract of VND 100 billion in 2008 with the requirement of 50% (fifty percent) down payment of the total cost and its remaining 50% (fifty percent) to be paid in the five following years (to my understanding), I would think that Company would report as follows:
Cash debt: VND 50 billion
Account receivable: VND 50 billion
Revenue: VND 87.91 billion
Revenue from financial operations: VND 12.09 billion (discounting account receivable at 10% annual interest rate).
Do I understand that correctly? If not, please bring up clarification for the right understanding? I take much interest in ITA stock and look forward hearing soon from Company.
Thuy Duong
Reply from the ITA Group
Dear Investor
ITA Group is one of the leading corporations in Vietnam in industrial park, residential and service infrastructure development. For the past years, our major business has been concentrated on land and factory plant leasing, accounting for 80 percent of total annual earnings.
Prior to 2007, our Company reported revenues on land and factory plant leasing in Industrial Parks in net proceeds and our financial statements were audited by the A&C Audit Company.
In 2008, the E&Y Audit Company audited our financial statements in accordance with the International Financial Reporting Standards (IFRS), which have carried out the once deferred revenue accounting method of land and factory plant leasing upon signing contracts instead of the previous revenue accounting in net proceeds. Therefore, we respond to the above question as follows:
- Deferred revenue of land and factory plant leasing would be reported once right after signing the contract and transferring it to customers (subtracting annual deferred discount as noticed by the Investor).
- Annual deferred interest (usually 5 years for land leasing and 10 years for factory plant leasing) would be annually reported based on the differed payment timing in accordance with the contract. Thus, Company would report as follows:
Cash debt: VND 50 billion
Account receivable: VND 40.33 billion
Revenue: VND 87.91 billion
Income from financial operations: VND 2.42 billion (Remaining discount would be reported into the following fiscal years at the applied interest rate).
The above is our answer to Investor‘s question and we expect more contributions and cooperation of shareholders and investors.
Truthfully Yours