How to Account for Office Interior Construction Costs in Vietnam

Accounting for office interior construction costs is a critical process within the financial management activities of businesses. It involves recording, categorizing, and tracking expenses incurred throughout the construction, installation, and completion phases of office interiors. Proper identification and allocation of these costs not only help businesses maintain effective budget control but also optimize investment efficiency for their workspace.

1. What is included in office interior construction costs?

Office interior construction costs typically cover multiple components, directly affecting the project’s overall budget. These costs can be divided into the following main categories:

• Design costs: Expenses related to hiring architects or office interior design firms for creating detailed drawings and optimizing space layouts.
• Material costs: Includes purchasing basic construction materials (bricks, cement, mortar, paint), finishing materials (wooden flooring, vinyl flooring, floor tiles, carpets, wallpapers), office furniture, and decorative items.
• Labor costs: Relates to hiring construction teams, including builders, electricians, and furniture installation workers.
• Machinery costs: Expenses associated with the use and operation of construction machinery and equipment necessary to support the construction process.
• General overhead costs: Covers general expenses such as utilities (electricity, water), management staff salaries, and depreciation of fixed assets.

Accounting for office interior construction costs is the process of recording, categorizing, and tracking all expenses incurred during the construction, installation, and completion of office interior projects. The primary objective of accounting for office interior construction costs is to accurately determine the project’s total costs, support effective financial reporting, and ensure precise calculation of project capital expenditures. As a result, businesses can efficiently manage their finances and improve strategic decision-making.

2. Procedures for accounting for office interior construction costs

Accurately implementing procedures for accounting for office interior construction costs ensures financial transparency, optimizes resources, and effectively manages budgets. Below is the detailed step-by-step process businesses should apply:

Step 1: Cost estimation and budgeting

The initial step in accounting for office interior construction costs involves developing a detailed budget plan, clearly outlining expenses associated with each category:

• Office interior design costs
• Construction material costs
• Labor costs
• Construction machireny costs
• Other incidental expenses

The primary objective of cost estimation is to forecast the total amount required, enabling businesses to proactively manage their budgets.

Step 2: Recording costs into relevant accounts

Once budgeting is completed, actual expenses incurred during the construction process must be systematically recorded in appropriate accounting accounts. Specifically, all costs related to the office interior construction process are recorded into Account 241 (Sub-account 2412 – Construction in progress).

Step 3: Cost allocation

After completing office interior construction, businesses allocate costs according to two scenarios:

• If the costs meet the criteria to be recognized as fixed assets (long-term use and future economic benefits), expenses recorded in Account 2412 – Construction in Progress will be transferred to Account 211 – Tangible Fixed Assets. These assets will subsequently undergo depreciation over their useful life.
• If costs do not meet fixed asset criteria (minor expenses without long-term benefits), expenses will be transferred to Account 642 – General Administrative Expenses and recorded as a period expense.

Step 4: Cost transfer

In this step, businesses carry out the cost transfer process as follows:

• If construction is incomplete, all related costs are recorded in Account 2412 – Construction in Progress.
• Upon completion, all costs accumulated in Account 2412 will be transferred to Account 211 – Tangible Fixed Assets or Account 632 – Cost of Goods Sold, depending on the accounting purpose.

3. Detailed accounting for office interior construction costs

Accounting for office interior construction costs requires accuracy and strict adherence to accounting regulations. Office interior construction can either be executed internally by the business or outsourced to contractors, each scenario affecting the accounting process differently.

Scenario 1: Self-performed construction

Businesses may only perform office interior construction internally if they possess sufficient resources and expertise required by the project. When using internal labor resources, all related costs incurred during the construction process are recorded directly into Account 2412 – Construction in Progress.

The accounting process for self-performed office interior construction includes steps and as follows:

Step 1: Recording basic construction costs

(1) If the construction serves business activities subject to VAT under the credit method, the journal entry is:

• Debit Account 2412 – Construction in progress (excluding VAT)
• Debit Account 1332 – Deductible VAT

+ Credit relevant accounts such as 111, 112, 152, 334, etc. (depending on the actual cost items)

(2) If the construction serves business activities subject to VAT under the direct method or non-VAT, the journal entry is:

• Debit account 2412 – Construction in progress (including VAT)

+ Credit relevant accounts such as 111, 112, 152, 334, etc.

Step 2: Capitalizing the asset value

Once the construction is completed, the business must record the increase in the value of the formed asset and reduce the balance in the construction in progress account.

• Debit account 211 – Tangible Fixed Assets (if the asset meets capitalization criteria)
• Or Debit account 642 – General Administrative Expenses (if not capitalized)

+  Credit account 2412: Construction in progress

Step 3: Recording the capital source

(1) If the fixed asset is funded through the basic construction investment capital or the development investment fund for business use, the journal entry is:

• Debit account 441 – Basic Construction Investment Capital
• Or debit account 414: Development Investment Fund

+  Credit account 411: Owner’s Investment Capital

(2) If the fixed asset is formed using the welfare fund and used for employee welfare purposes:

• Debit account 3532 – Welfare Fund

+ Credit account 3533 – Welfare Fund used to Form Fixed Assets

Step 4: Transferring construction costs

(1) If the construction is not yet completed:

• Debit account 2412 – Construction in progress

+ Credit relevant accounts such as 111, 112, 152, 334, etc.

(2) Once the construction is completed:

• Debit account 211: Tangible Fixed Assets
• or Debit account 632 – Cost of Goods Sold

+  Credit account 2412: Construction in progress

Scenario 2: Accounting for office interior construction costs when outsourcing to contractors

If the business outsources the office interior construction to a third-party contractor, it must strictly comply with the contractor selection principles under the Construction Law. Accordingly, the selected contractor must meet the necessary competency requirements to deliver products or services that align with project demands, while also offering a competitive bid price.

Below are the accounting journal entries for office interior construction costs under the outsourcing method:

(1) When the business receives the completed volume of construction work from the contractor:

• Debit account 2412: Value of completed construction and installation work
• Debit account 1332: Deductible VAT (if applicable)

+ Credit account 331: Payables to suppliers

(2) In case of purchasing and warehousing construction-related equipment:

• Debit account 152: Value of construction equipment received into inventory
• Debit account 1332: Deductible VAT (if applicable)

+ Credit account 331: Payables to suppliers

(3) In case of purchasing equipment that does not require installation and directly delivering it to the contractor at the construction site:

• Debit account 2412: Equipment costs delivered to the contractor
• Debit account 1332: Deductible VAT (if applicable)

+ Credit account 331: Payables to suppliers

(4) In case of delivering equipment from inventory to the contractor:

• Debit account 2412: Equipment costs delivered to the contractor

+ Credit account 152: Raw materials and supplies

(5) When other related costs arise during the office interior construction process:

• Debit account 2412: Other construction-related costs
• Debit account 1332: Deductible VAT (if applicable)

+ Credit account 111, 112, 331…

(6) When the construction is completed and fully accepted, and the asset is put into use:

• If the final settlement is approved immediately, record the actual value of the asset formed.
• If the final settlement is not yet approved, record the temporary value of the asset based on account 2412.

In both cases, the entry is:

• Debit accounts 211, 213, 217
• or debit account 1557: Completed real estate products

+ Credit account 241: Approved value or temporary value

(7) After the final settlement is approved, accountants must adjust the temporary value to match the approved asset value:

• If the approved value is lower than the temporary value:

+  Debit accounts 138: Other receivables

– Credit accounts 211, 213, 217, 1557

If the approved value is higher than the temporary value:

+  Debit accounts 211, 213, 217, 1557

– Credit relevant accounts

4. Example of accounting for office interior construction costs

Assume that ABC Company signs a contract with XYZ Company to construct office interiors with a total contract value of 500,000,000 VND. ABC Company has made a prepayment of 200,000,000 VND. Upon project completion, XYZ Company issues an invoice totaling 480,000,000 VND, including:

• Material costs: 300,000,000 VND
• Labor costs: 150,000,000 VND
• Project management costs: 30,000,000 VND

ABC Company has reviewed, accepted the project, and agrees to pay the remaining balance to XYZ Company.

Journal entries:

(1) ABC Company makes an advance payment of 200,000,000 VND to XYZ Company:

• Debit account 241: 200,000,000 VND

+ Credit account 112: 200,000,000 VND (Payables to supplier)

(2) ABC Company receives the invoice and records the costs:

• Debit account 241: 480,000,000 VND

+ Credit account 152: 300,000,000 VND (Materials)

+ Credit account 642: 150,000,000 VND (Labor costs)

+ Credit account 642: 30,000,000 VND (Project management costs)

(3) ABC Company pays the remaining balance to XYZ Company (the service provider):

• Debit account 241 280,000,000 VND

+  Credit account 112 280,000,000 VND (Payables to supplier)

4) Cost transfer:

• Debit account 211 480,000,000 VND (Tangible fixed assets)

+  Credit account 241 480,000,000 VND

*Notes:

• The construction contract serves as the legal basis for cost accounting.
• The acceptance certificate is required for both payment processing and cost transfer.
• If there are additional expenses such as transportation or installation fees, they should also be recorded under Account 241.
• The tangible fixed asset will be depreciated over subsequent accounting periods.

Accounting for office interior construction costs is a critical task in business financial management, requiring accuracy and caution. Proper execution of accounting steps ensures precision and transparency in financial reporting, while supporting businesses in improving operational efficiency and making sound financial decisions.