Regarding issues related to the order of writing-off destroyed or damaged property by enterprises in connection with the Russian armed aggression against Ukraine

Regarding issues related to the procedure for writing-off destroyed or damaged property by enterprises in connection with the Russian armed aggression against Ukraine, the Ministry of Finance of Ukraine provided an explanation at the request of the State Tax Service by letter № 41010-06-62/23254 as of 10.10.2022.

As is stated in the explanation, according to Article 1 of the Law of Ukraine "On ensuring rights and freedoms of citizens and legal regime in the temporarily occupied territory of Ukraine", territory of Ukraine temporarily occupied by the Russian Federation is an integral part of the territory of Ukraine, which is subject to the Constitution and laws of Ukraine, as well as international treaties, consent to the binding of which was given by the Verkhovna Rada of Ukraine.

Article 11 of this Law stipulates that individuals, regardless of their acquisition of the refugee status or other special legal status, enterprises, institutions, organizations retain ownership and other property rights to property, including immovable property, including land plots located in the temporarily occupied territory, if it was acquired according to the laws of Ukraine.

Law of Ukraine "On accounting and financial reporting in Ukraine" (hereinafter – Law) stipulates that accounting is a mandatory type of accounting maintained by the enterprise. Financial, tax, statistical and other types of reporting that use monetary measure are based on the accounting data.

Accounting base of economic operations are primary documents that contain information about the economic operation (an action or case that causes changes in the structure of assets and liabilities, enterprise’s own capital).

Primary documents can be compiled in a paper or electronic form and must have mandatory requisites provided by the Law.

To ensure the reliability of accounting and financial reporting data, enterprises are required to conduct an inventory of assets and liabilities, during which their availability, condition and valuation are checked and documented.

Accordance to the Procedure for submitting financial reporting, approved by Resolution of the Cabinet of Ministers of Ukraine № 419 as of 28.02.2000 (hereinafter – Procedure № 419) and Regulation on the inventory of assets and liabilities, approved by Order of the Ministry of Finance of Ukraine № 879 as of 02.09.2014 (hereinafter – Regulation № 879), conduction of inventory is mandatory in particularly case of establishing theft or abuse, damage to valuables (on the day of establishing such facts); man-made accidents, fire or natural disaster (on the day after the end of phenomena) in the amount determined by the head of enterprise.

Enterprises that, since the beginning of temporary occupation, were located in the territory of the Autonomous Republic of Crimea and Sevastopol city, in the temporarily occupied territory in Donetsk and Luhansk regions, territory of the anti-terrorist operation and/or the implementation of measures to ensure national security and defense, repulse and deter armed aggression of the Russian Federation in Donetsk and Luhansk regions and enterprises that were (are) located in areas of military (combat) operations during the martial law, or enterprises whose structural divisions (separate property) are located in such territories (areas) conduct inventory in case of the possibility of safe and unimpeded access of authorized persons to assets, primary documents and accounting data, in which liabilities and equity of enterprises are reflected.

In the annual financial reporting, information about assets to which it is impossible to ensure safe and unhindered access, liabilities and equity, which cannot be documented due to the lack of access to the relevant primary documents and accounting data, is reflected according to the accounting registers.

Enterprises, specified in Clause 10 of Paragraph 12 of Procedure № 419, are obliged to conduct inventory as of the first day of a month following the month in which access to assets, primary documents and accounting data became possible, and to reflect inventory results in accounting data of the relevant reporting period.

Heads of enterprises, specified in Clause 10 of Paragraph 12 of Procedure № 419, in case of establishing theft (misappropriation), shortage, destruction (damage) of property, may make a decision to conduct inventory of such separately determined property on the day of establishment of such facts.

Areas of military (combat) operations during the martial law are determined according to legislation.

According to Regulation № 879, during inventory of assets and liabilities, their presence, condition, compliance with criteria for recognition and assessment are checked and documented.

In order to record presence, condition and valuation of assets of the enterprise and those assets that belong to other enterprises and are accounted for off the balance sheet, inventory descriptions are used, which are drawn up according to requirements established by the Regulation on documentary support of accounting data, approved by Order of the Ministry of Finance of Ukraine № 88 as of 24.05.1995, registered in the Ministry of Justice of Ukraine on 05.06.1995 under № 168/704 (as amended), for primary documents taking into account mandatory requisites and requirements stipulated by Regulation № 879.

Regulation № 879 stipulates that discrepancies between the actual availability of assets and liabilities and accounting data discovered during inventory are regulated by enterprises in the following order, in particular:

lack of stocks within the limits of established norms of natural loss, discovered during inventory, is written off by order of the head of enterprise to expenses;

lack of values exceeding the natural loss norm, as well as losses from the deterioration of values are written off from the balance sheet and transferred to the account of guilty persons in the amount determined according to the law in case that the guilty persons are not established, they are credited to the off-balance sheet account until the moment of establishment of the guilty persons or closure cases according to the law.

Amount of damages from theft, shortage, destruction (damage) of material values is determined according to legislation.

It should be noted that Procedure for determining damage and losses caused to Ukraine as a result of the armed aggression of Russian Federation was approved by Resolution № 326 of the Cabinet of Ministers of Ukraine as of 20.03.2022.

Procedure for implementation of urgent works related to the elimination of consequences of the armed aggression of Russian Federation, related to the damage to buildings and structures, was approved by Resolution of the Cabinet of Ministers of Ukraine № 473 as of 19.04.2022. This Procedure is used to record damage caused by the armed aggression of Russian Federation to buildings and structures of private and communal ownership form and can also be used to fix damage to the state-owned buildings and structures.

As follows, the non-current assets and stocks, which were reflected in accounting data before introduction of the martial law and which, as of the date of compiling financial reporting, are actually located in the temporarily occupied territory or in areas of military (combat) operations, continue to be accounted for as a part of the enterprise’s assets.

At the same time, enterprise must assess the negative impact of changes in the economic and legal environment and recognize amount of losses from the impairment of non-current assets until conditions for accessing such assets, conduction of inventory and making decision on their write-off or restoration of usefulness.

Herewith, enterprises that are located in areas of military (combat) operations and apply national accounting regulations (standards) for accounting data, identified as a result of inventory of shortages, loss or destruction of the non-current assets and stocks on the basis of properly executed documents are reflected in the composition of enterprise’s expenses.

Information about the lack of access to assets and primary documents of the enterprise is noted in notes to financial reporting.

Law stipulates that responsibility for organizing accounting data and ensuring recording of facts of all business operations in primary documents, preservation of processed documents, registers and reports for a set period, but not less than three years, is responsibility of the authorized body (official) who manages the enterprise or the owner according to the law and constituent documents.

In addition, according to Part 2 of Article 19 of the Constitution of Ukraine, state authorities and local self-government bodies, their officials are obliged to act only on the basis, within the limits of authority and in manner provided by the Constitution and laws of Ukraine.

Law of Ukraine "On chambers of commerce and industry in Ukraine" defines the general legal, economic and social creation principles of chambers of commerce and industry in Ukraine, organizational and legal forms and directions of their activity, as well as principles of their relationship with the state.

Provision of clarifications on implementation of the Law of Ukraine "On chambers of commerce and industry in Ukraine" and establishing a list of areas for conducting military (combat) operations during the martial law under authority of the Ministry of Finance of Ukraine, determined by Regulation of the Ministry of Finance of Ukraine, approved by Resolution of the Cabinet of Ministers of Ukraine № 375 as of 20.08.2014, does not belong.

At the same time, Article 15 of the Law of Ukraine "On legal regime of the martial law" stipulates that territorial communities in territories of which hostilities are ongoing, as well as settlements that are surrounded, are determined by the relevant regional military administrations in agreement with the General Staff of the Armed Forces of Ukraine.

Article 3 of the Law of Ukraine "On ensuring rights and freedoms of citizens and legal regime in the temporarily occupied territory of Ukraine" stipulates that the administrative border between the temporarily occupied territory and another territory of Ukraine is determined by the Cabinet of Ministers of Ukraine.

List of territorial communities that are located in the area of military (combat) operations or that are under temporary occupation, encirclement (blockade) is formed by the Ministry for Reintegration of the Temporarily Occupied Territories of Ukraine in agreement with the Ministry of Defense of Ukraine on the basis of suggestions of relevant regional and Kyiv city military administrations.

In particular, the list of territorial communities that are located in areas of military (combat) operations or that are under temporary occupation, encirclement (blockade) as of 23.09.2022 was approved by Order of the Ministry for Reintegration of the Temporarily Occupied Territories of Ukraine № 75 as of 25.04.2022 (in wording of Order of the Ministry for Reintegration of the Temporarily Occupied Territories of Ukraine № 217 as of 26.09.2022).

It should be noted that letters of the ministries do not establish legal norms; they are only of a recommendatory and informative nature.