General Repair / Construction of Fixed Asset by Administration Expenditures on Existing Property, Plant and Equipment may be classified as follows:

a. Capital Expenditure Is an asset and therefore should be capitalized. An expenditure that benefits the current period and future periods is a capital expenditure and therefore reported as an asset. b. Revenue Expenditure Is an expense. An expenditure that benefits only the current period is revenue expenditure and therefore reported as an expense. General repair or Construction of Fixed asset by administration The materials purchased shall be entered in the Construction Materials Inventory account. This account is credited with the materials issued for the construction, with a corresponding debit to Construction in Progress Agency Assets. The latter shall also be debited upon payment of labor for the construction. Upon completion of the project, the Construction in Progress account is adjusted to the appropriate fixed asset account. It should be noted that only one Construction in Progress account for the construction of agency assets is used. Subsidiary ledgers for each classification of assets shall be maintained. Illustration: The Bureau X of the national government agency received capital outlay allotment and Notice of Cash Allocation (net of tax remittance advice) from the Department of Budget and Management in the amount of P10,000,000 and P8,000,000, respectively. Upon approval of the project proposal for the general repair of the administration building, purchase order for materials was issued in the amount of P4,000,000. At the date of delivery, construction materials were inspected and paid in full. Materials of P3,500,000 were issued and used in the construction. Payroll for labor cost in the amount of P1,500,000 less 10% withholding tax was submitted to the administration, and cash advance was granted to disbursing office for the eventual payment of payroll. Withholding tax payable was remitted to the Bureau of Internal Revenue and upon approval of the accomplishment report by the head of the agency, the capital expenditures were taken in the books of Bureau X.

a. To record receipt of allotment in RAOCO:

REGISTRY OF ALLOTMENTS AND OBLIGATIONS CAPITAL OUTLAY (RAOCO) BUREAU X

Date

Ref

P.P.A

Account Code

Allotment Received 10,000,000.00

Obligation Incurred

Balance 10,000,000.00

b. To record the Notice of Cash Allocation received, net TRA.

Account Title Cash - National Treasury, MDS Subsidy Income from National Government Account Code 108 651 Debit 8,000,000.00 8,000,000.00 Credit

c. To record obligation of materials purchased in RAOCO.

REGISTRY OF ALLOTMENTS AND OBLIGATIONS CAPITAL OUTLAY (RAOCO) BUREAU X

Date

Ref

P.P.A

Account Code

Allotment Received 10,000,000.00

Obligation Incurred

Balance 10,000,000.00

168

4,000,000.00

6,000,000.00

d. To record receipt of construction materials with the charge invoice.

Account Title Construction Materials Inventory Accounts Payable Account Code 168 401 Debit 4,000,000.00 4,000,000.00 Credit

e. To record payment of materials, net of 10% withholding tax.

Account Title Accounts Payable Due to BIR Cash - National Treasury, MDS Account Code 401 412 108 Debit 4,000,000.00 400,000.00 3,600,000.00 Credit

f. To record issuance of materials for use in the construction.

Account Title Construction In Progress Agency Assets Construction Materials Inventory Account Code 264 168 Debit 3,500,000.00 3,500,000.00 Credit

g. To record obligation of payroll in RAOCO.

REGISTRY OF ALLOTMENTS AND OBLIGATIONS CAPITAL OUTLAY (RAOCO) BUREAU X

Date

Ref

P.P.A

Account Code

Allotment Received 10,000,000.00

Obligation Incurred

Balance 10,000,000.00 6,000,000.00 4,500,000.00

168 264

4,000,000.00 1,500,000.00

h. To record cash advance (net of 10% withholding tax) granted to disbursing officer.
Account Title Cash Disbursing Officers Cash National Treasury, MDS Account Code 102 108 Debit 1,350,000.00 1,350,000.00 Credit

i.

To record liquidation of cash advance by disbursing officer.

Account Title Account Code 264 412 102 Debit 1,500,000.00 150,000.00 1,350,000.00 Credit

Construction In Progress- Agency Assets Due to BIR Cash Disbursing Officer

j.

To record remittance of withholding taxes for materials and labor.

Account Title Account Code 412 651 Debit 550,000.00 550,000.00 Credit

Due to BIR Subsidy Income from National Government

Note: If the Notice of Cash Allocation was not reduced by Tax remittance Advice, the journal entry to record remittance of withholding tax would be:
Account Title Due to BIR Cash- National Treasury, MDS Account Code 412 108 Debit 550,000.00 550,000.00 Credit

To take up the asset account in the books of Bureau X.

Account Title Buildings Construction In Progress- Agency Assets Account Code 211 264 Debit 5,000,000.00 5,000,000.00 Credit