Accounting Guidance for Reducing Fixed Asset Cost upon Dismantling Components during Upgrades
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Based on:Thông tư số 99/2025/TT-BTC ngày 27/10/2025 - Ministry of Finance
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The Ministry of Finance guidance states that when a company dismantles components of a tangible fixed asset (TFA) and replaces them with new equipment that increases capacity or extends useful life, the carrying cost of the removed component must be **deducted from the TFA's original cost**, while the cost of the new component is **added to the original cost** and depreciated going forward. This applies even when the removed parts do not individually qualify as stand-alone fixed assets. The deduction is recorded at the time the component is physically removed. The deduction value is estimated using TFA records or market data and must be disclosed in the financial statements. Companies bear sole responsibility for determining whether the activity constitutes routine maintenance (expensed) or a capital upgrade increasing economic benefit (capitalized), as only upgrades justify adjusting the TFA's original cost.
Fixed Asset Accounting Q&A: Component Replacement during Upgrades
Legal basis: Circular 99/2025/TT-BTC dated 27 October 2025 (enterprise accounting regime).
Legal Provisions
Article 211.1(e), Schedule II, Circular 99/2025/TT-BTC: Original cost of tangible fixed assets may be adjusted in these cases:
- Construction, additional equipping, or upgrading that increases capacity or extends useful life;
- Replacing one or more components to increase useful life or capacity;
- Improving a component to significantly enhance product quality;
- Adopting new technology to reduce operating costs;
- Dismantling one or more components of a TFA.
All increases or decreases in TFA must be supported by documentation (handover records, liquidation minutes, etc.).
Article 211.1(g): Routine maintenance costs are expensed in the current period. Post-recognition costs that increase the TFA's economic benefit are capitalized.
Specific Guidance
- Condition: The new equipment must increase capacity or extend the TFA's useful life (increase economic benefit).
- Accounting treatment: Deduct the estimated value of the removed old component from TFA original cost; add the cost of the new component to TFA original cost and depreciate.
- Timing of deduction: Recorded at the date the old component is physically removed.
- Value of deduction: Estimated from TFA records, market data, or another reliable method; must be disclosed in financial statement notes.
- Responsibility: Companies independently determine whether the activity is maintenance or a capital upgrade and bear legal responsibility.
- Tax obligations: Determined under applicable tax law.