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Implementing the

GOVERNMENT ACCOUNTING MANUAL


(For National Government Agencies)

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-1
on Property, Plant and Equipment
Session 9

Applying the Accounting Policies


on Property, Plant and Equipment

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-2
on Property, Plant and Equipment
Session Overview
Accounting policies and procedures on
recognition, measurement, derecognition,
disclosure requirements of PPE in the FS;

Different modes of acquisition of PPE; and

Forms, records and reports to be prepared and


maintained.

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-3
on Property, Plant and Equipment
Learning Objective

At the end of the session you will be able to know and


apply the accounting policies and procedures for Property,
Plant and Equipment in accordance with the Government
Accounting Manual.

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-4
on Property, Plant and Equipment
Exercise 9.A 2
3 4
1

7 8

9 10 11

12

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-5
on Property, Plant and Equipment
Property, Plant and Equipment - Definition

TANGIBLE
ASSETS held for:
purchased, 1) use in the
constructed, production or
developed or supply of goods or
otherwise
services
acquired
2) rental to others
3) administrative
purposes
expected to be used not intended for resale
during more than one in the ordinary course
reporting period of operations

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-6
on Property, Plant and Equipment
Criteria for Recognizing PPE
future economic benefits will flow
to the entity
C
R cost or fair value can be measured
reliably
I
T ownership and control rest with the
entity
E
R used to achieve government
I objectives
A meets the capitalization threshold
of P15,000.00

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-7
on Property, Plant and Equipment
Policies on the Application of the
P15,000.00 Threshold

minimum cost of the individual asset

individual items below the threshold but


work together as one network of asset, the
amount exceeds the threshold

the P15,000 shall not be applied to the


aggregate value of PPE acquired in bulk

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-8
on Property, Plant and Equipment
Exercise 9-B
Time Required: 15 minutes
Instructions:

1. Entity A purchase the following PPE:

a. Medical equipment amounting to P20,000.00.

b. Computer set amounting to P40,000 broken as follows: Monitor


P10,000; CPU P26,000; Key board P2,500 and Mouse P1,500.

c. 50 pcs. monoblock chair amounting to P50,000.00.

2. Determine the initial cost of the PPE and prepare the


accounting entries.
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-9
on Property, Plant and Equipment
Reclassification of PPE to Semi-expendable account
For those PPE already issued before January 1, 2016 that
fall below the threshold

Accumulated Surplus/Deficit (CA) 1,340.00


Accumulated Depreciation- 2,755.00
Furniture and Fixture
Furniture and Fixture (Cost) 14,000.00

For those still under the custody of the Property Custodian

Semi-expendable Office Equipment 13,500.00


Office Equipment 13,500.00
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-10
on Property, Plant and Equipment
Additional Criteria for Infrastructure Assets

Part of a system or network

Specialized in nature and do not have


alternative uses

Immovable

May be subject to constraints on


disposal

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-11
on Property, Plant and Equipment
Land Improvements, Reforestation Projects

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-12
on Property, Plant and Equipment
Heritage Assets

Their value in cultural, environmental, educational, and


historical terms is unlikely to be fully reflected in a financial
value based purely on market price

Legal and/or statutory obligations may impose prohibitions or


severe restrictions on disposal by sale

Irreplaceable and their value may increase over time even


if their physical condition deteriorates

Difficult to estimate their useful life, which in some cases could


be several hundred years

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-13
on Property, Plant and Equipment
Measurement at Recognition

Initial Cost
Cost
Subsequent Cost

OR

Fair Value
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-14
on Property, Plant and Equipment
ELEMENTS OF COST

Purchase Initial estimate of


price dismantling and
removing the
item and
restoring the site

Directly attributable
cost
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-15
on Property, Plant and Equipment
Initial Cost-Reforestation Projects
Survey, Mapping and Planning (SMP)

Nursery Operation and Seedling Production or Procurement

Plantation Establishment

Social Mobilization, and Information, Education and Communication

Project monitoring and Supervision

Man hours of regular and permanent employees

Measurable cost of inputs from other agencies, LGUs and NGOs

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-16
on Property, Plant and Equipment
Subsequent Cost
Repairs and Maintenance

Betterments

Additions and Rearrangements

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-17
on Property, Plant and Equipment
Subsequent Cost
Repairs and Maintenance - expense

- primarily maintains or improve the functionality and capacity of the

PPE; increase its service life; improve the quality of output; or reduce

the operating cost.

- minor repairs shall be expense outright while major repairs shall be

capitalized as PPE, if it cannot be differentiated into minor or major

repair, it shall be treated as expense.

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-18
on Property, Plant and Equipment
Policies on Subsequent Cost Reforestation Projects
for the maintenance and protection incurred within the duration of
the reforestation project shall be capitalized.
for the maintenance and protection incurred after the duration or
turn-over of the reforestation project shall be charged to expense
cost of replacing trees in small numbers in any one particular area
shall be charged to expense
where a large number of trees are replaced in one particular area the
costs involved shall be capitalized and the corresponding cost of
the trees replaced shall be derecognized.
cost to remove existing trees in order to plant new trees shall also be
capitalized. However, the cost of removing trees cannot be
capitalized where no new trees are being planted in their place.

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-19
on Property, Plant and Equipment
Different Modes of Acquiring PPE

Purchase
Construction
Exchange transaction
Non-exchange transaction
Transfer
Finance lease

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-20
on Property, Plant and Equipment
Purchase

Cash
Account
Installment
With promotional items
-promotional item received is the same as PPE purchased
-promotional item received is different from the PPE purchased
Lump sum price

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-21
on Property, Plant and Equipment
Construction

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-22
on Property, Plant and Equipment
Turn over of Reforestation Projects

After the planting activities (3 years) the project shall be


recognized in the books under the account Construction
in Progress Land Improvements, Reforestation Projects
based on the final IAR supported by geo-tagged photos,
Memorandum of Agreement, Letter of Authority and Work
and Financial Plan

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-23
on Property, Plant and Equipment
Exchange Transactions
Acquisition of PPE in exchange
Lets trade this for a
guy non-monetary assets, or a
for a new combination of monetary and
non-
printer! monetary assets
Measurement of PPE:
a. Fair value (with commercial
substance)
b. Carrying amount of asset given up
(w/out commercial substance or if
the fair value of the asset received
or given up cannot be measured
reliably)
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-24
on Property, Plant and Equipment
Non-exchange Transactions
Measured at Fair value at the date of acquisition

Donation without Condition


shall be measured at its fair value at the date of acquisition
directly recognized as Income from Grants and Donations in Kind

Donation with Condition


a liability account shall be recognized until the conditions or restrictions have been fulfilled

Grants
Assistance in the form of transfer of resources, in cash or in kind from other of government, private
sectors or international institutions

Intra-agency transfers
transfer from Central Office to Regional Offices/Staff Bureaus or vice versa

Inter-agency transfers
transfer from one government entity to another entity
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-25
on Property, Plant and Equipment
Transfers/Finance Lease

-Transfers
Implementation of projects through funds
transferred/received may require the acquisition of the
necessary PPE
Source agency shall record and monitor the PPE if the
Memorandum of Agreement/Understanding (MOA/U) provides that
the PPE shall be returned to the source agency
Implementing Agency shall record and monitor the PPE if the
Memorandum of Agreement/Understanding (MOA/U) provides that
the PPE shall be donated to the implementing agency
Finance Lease
-Lease that transfers substantially all the risks and rewards
incident to ownership of an asset
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-26
on Property, Plant and Equipment
Measurement after Recognition

Cost
Model

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-27
on Property, Plant and Equipment
Policies Applicable to Depreciation of PPE
All PPE shall be depreciated except land and not recognized
heritage assets
Depreciation begins when the asset is available for use, if
availability is on or before the 15 th of the month, record
depreciation during the month, if after the 15 th of the month,
depreciation shall be for the succeeding month
Adopt straight line method of depreciation
Estimation of the useful life of the asset is a matter of
judgment based on the experience of the entity
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-28
on Property, Plant and Equipment
PPE Shall be Depreciated over the Following Life Spans

Property, Plant and Estimated Useful Life


Equipment
Land Improvements useful life of the asset to which the
improvement was made
Infrastructure Assets 20 to 50 years
Buildings and Other Structures 30 to 50 years
Machinery and Equipment 5 to 15 years
Transportation Equipment:
Motor vehicles 5 to 15 years
Motor vehicles (Military 3 to 20 years
vehicles)
Trains 10 to 20 years
Aircrafts and Aircrafts Ground
Equipment 10 to 20 years
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-29
on Property, Plant and Equipment
PPE Shall be Depreciated over the Following Life Spans

Property, Plant and Estimated Useful Life


Equipment
Watercrafts 10 to 25 years
Furniture, Fixtures and Books 2 to 15 years
Leased Assets, excluding Land useful life of the leased asset or the
lease term, whichever is shorter.
Leased Assets Improvements useful life of the improvement or the
lease term, whichever is shorter.
Service Concession Assets useful life of the service concession
asset or the term of the service
concession arrangement, whichever
is shorter.
Other Property, Plant and 2 to 15 years
Equipment
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-30
on Property, Plant and Equipment
Policies applicable to depreciation of PPE
Residual value is at least 5% of the cost
Estimated useful life and residual value shall be reviewed on a
regular basis and revised if a change is clearly demonstrated
Depreciation is recorded as a debit to Depreciation Expense
and a credit to Accumulated Depreciation
Each part of a PPE with a cost that is significant to the total
cost shall be recorded and depreciated separately
Computation of depreciation shall be cost less residual value
over the estimated useful life
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-31
on Property, Plant and Equipment
Impairment
Impairment is a loss in the future economic benefits or service
potential of an asset, over and above the systematic recognition
through depreciation.

Carryi RSA
Impairm (NCGA)
ng
or
ent Loss Amou RA
nt (CGA)
Cost
Accumulated Fair value less
Depreciation Cost to sell and
and Value in Use
Accumulated whichever is
Impairment higher
Loss
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-32
on Property, Plant and Equipment
REVERSAL OF IMPAIRMENT LOSS

Assess existence of impairment loss recognized in


prior periods

If impairment no longer exists or has decreased,


estimate the RSA / RA of the PPE.

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-33
on Property, Plant and Equipment
PROCEDURES IN RECOGNIZING REVERSAL OF
IMPAIRMENT LOSS
1. Determine the recoverable service amount.
2. Compare the recoverable service amount with the carrying amount (net of
accumulated depreciation and accumulated impairment losses). If the
recoverable service amount is higher than carrying amount, the difference is
the estimated reversal of previously recognized impairment loss or a portion
thereof.
3. Compute the carrying amount (net of accumulated depreciation) as if no
impairment loss is recognized in prior periods.
4. Compute the difference in the two carrying amounts.
CA had no impairment loss been recognized in prior years(3) CA with
impairment(2)
5. The amount of reversal of the impairment loss is the lower of the difference
between the two carrying amounts referred to in (4) and the estimated
reversal in (2).
GAM: Accounting
Session 9: Applying the Accounting Policies
Slide 9-34
on Property, Plant and Equipment
Policies on Disposal/Derecognition of PPE
Gain or loss arising from derecognition shall be included in surplus or
deficit.

If an entity recognizes in the CA the cost of a replacement, then the CA of


the replaced part should be derecognized

Gain or loss from disposal shall be determined as the difference between


the net disposal proceeds, if any, and the CA

JEV shall be prepared by the Accounting Unit to record the disposal

Disposal procedures of unserviceable property shall be in accordance


with Supply and Property Management Manual and Section 79 of PD 1445.

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-35
on Property, Plant and Equipment
Idle, Unserviceable and Fully Depreciated PPE

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-36
on Property, Plant and Equipment
Accounting Policies on Loss of Property
Accountable officer shall immediately notify the Auditor concerned within 30
days of the lost property and submit his/her application for relief together with
supporting evidences.

Lost property and the related accounts shall be derecognized in the books
upon receipt of the Report of Lost, Stolen, Damaged, Destroyed Property
submitted by the Property Officer supported by a Notice of Loss prepared by
the Accountable Officer.

Loss shall be charged to account Loss of Assets at an amount equal to its


carrying amount.

Accountability of the accountable officer over the loss shall be based on


depreciated replacement cost.

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-37
on Property, Plant and Equipment
Accounting Policies on Loss of Property
A receivable account shall be set up to record the
accountability of the accountable officer simultaneous
with derecognition of the lost PPE.

Compensation from third parties of PPE that were


impaired, lost or given up shall be recorded as income.

In case of partial destruction/loss of PPE the amount to be


derecognized shall be its carrying amount less the fair
value of the remaining serviceable portion.

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-38
on Property, Plant and Equipment
Different Forms and Reports

Property Card Inspection an Property Ack Report on Phy


d Acceptance nowledgement sical Count o
Report Receipt f PPE

Inventory and I Report of Lost, Property Tran Property, Pla


nspection Repor Stolen, Damage sfer Report nt and Equipm
t for Unservice d or Destroyed ent Ledger Ca
able Property Property rd

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-39
on Property, Plant and Equipment
PROCEDURES IN THE REQUISITION AND
ISSUE OF PPE Property Property
Property Custodian
Property
Inspector receives the
Custodian signs
inspects and PPE from
Received of
verifies the PPE Property
the DR and
and signs the Inspector and
prepares the
Inspection signs the
IAR
column of the IAR Acceptance
column of IAR
Property
Accounting
Custodian Property
unit
records the PPE Division/Unit
prepares
in the Property prepares DV
JEV
Card
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-40
on Property, Plant and Equipment
PROCEDURES IN THE REQUISITION AND ISSUE
OF PPE
Property Division Property
Requesting receives the RIS Custodian
Office/Personn and determines prepares the PAR
el prepares the the availability of based on the
RIS the requisitioned approved RIS
PPE
Requesting office
Property signs the
Accounting Custodian records received by
Unit prepares the issuance of portion of PAR
JEV PPE in the and RIS and
Property Card checks the
PPELC Keeper
records the received PPE
issuance of PPE
in the PPELC
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-41
on Property, Plant and Equipment
FS shall have the following PPE disclosures

a. The financial statements shall disclose, for each class of PPE:


- measurement bases for determining the gross carrying amount;
- depreciation methods used;
-. useful lives or the depreciation rates used;
-. gross carrying amount and the accumulated depreciation (aggregated
with accumulated impairment losses) at the beginning and end of the period

b. Reconciliation of the CA at the beginning and end of the period

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-42
on Property, Plant and Equipment
FS shall have the following PPE disclosures

c. The FSs shall also disclose, for each class of PPE:


Existence and amounts of restrictions on title and PPE pledged as securities for
liabilities;
Amount of expenditures recognized in the carrying amount in the course of its
construction;
Amount of contractual commitments for the acquisition of PPE; and
Amount of compensation from third parties that were impaired, lost or given up that is
included in surplus or deficit.
d. Encourage to disclose the following using the data in the IIRUP
Carrying amount of temporarily idle PPE;
Gross carrying amount of any fully depreciated PPE that is still in use;
Carrying amount of PPE retired from active use and held for disposal; and
Fair value of PPE when this is materially different from the carrying amount if the cost
model is used.
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-43
on Property, Plant and Equipment
Reconciliations (in thousand pesos)

Particulars Land Buildings Machinery Furniture and Fixtures

Comparative Reporting Periods 2015 2014 2015 2014 2015 2014 2015 2014
Beginning Carrying Amount 2,025 2,025 2,090 2,260 1,085 1,100 200 150

Add : Additions - - 250 100 120 200 20 100

Total 2,025 2,025 2,340 2,360 1,205 1,300 220 250

Less : Disposals - - (150) (40) (60) (80) (20) -


Depreciation (As per Statement of Financial
Performance)
- - (160) (180) (145) (135) (50) (50)
Impairment Loss (As per Statement of Financial
Performance) - - (30) (50) - - - -
Ending Carrying Amount (As per Statement of Financial
Position)
2,025 2,025 2,000 2,090 1,000 1,085 150 200

Gross Cost (Asset Account Balance per Statement of


Financial Position) 2,025 2,025 2,420 2,320 1,280 1,135 250 250

Less : Accumulated Depreciation - - (340) (180) (280) (135) (100) (50)

Allowance for Impairment (80) (50)

Carrying Amount (As per Statement of Financial Position) 2,025 2,025 2,000 2,090 1,000 1,085 150 200

Session 9: Applying the Accounting Policies


GAM: Accounting Slide 9-44
on Property, Plant and Equipment
Session 9: Applying the Accounting Policies
GAM: Accounting Slide 9-45
on Property, Plant and Equipment