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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

purchased, constructed, held for:


developed or otherwise 1) use in the production or
acquired supply of goods or services
2) rental to others
3) administrative purposes

expected to be used during not intended for resale in the


more than one reporting period ordinary course 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

cost or fair value can be measured reliably

ownership and control rest with the entity

used to achieve government objectives

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

Recognized after the duration of the


planting activities which is three years;
Additional and
Criteria
Passed the performance evaluation.

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

Initial estimate of
Purchase 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

Contract Administration
Labor and materials – in
Construction-in- Progress
compliance with RA 9184

Transferred to proper
asset account

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

Let’s trade this guy Acquisition of PPE in exchange for a


for a new printer! non-monetary assets, or a
combination of monetary and non-
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
Less accumulated Less accumulated
Cost
depreciation impairment loss

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 15th of the month, record
depreciation during the month, if after the 15th 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 Equipment Estimated Useful Life


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 vehicles) 3 to 20 years
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 Equipment Estimated Useful Life


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 Equipment 2 to 15 years

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.

RSA
Impairment (NCGA)
Carrying
or
Loss Amount RA
(CGA)

Cost – Accumulated
Fair value less Cost to
Depreciation and
sell and Value in Use
Accumulated
whichever is higher
Impairment 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).
Session 9: Applying the Accounting Policies
GAM: Accounting 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
• does not preclude depreciating the PPE
• future benefits are consumed not only
Idle through usage but also through
obsolescence, and wear and tear

• no longer capable of providing future economic


benefits or service potential
Unserviceable
• reported in the IIRUP
• dropped from the books by debiting Impairment Loss
– PPE (net of cost of the PPE less Accum.
Depreciation)
• carrying amount is equal to zero, or the carrying
amount is equal to residual value
Fully
Depreciated • fully depreciated assets remaining in service and
the related accumulated depreciation shall not be
removed from the accounts.
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
Inspection and Report on Physical
Property Card Acknowledgement
Acceptance Report Count of PPE
Receipt

Inventory and Property, Plant and


Report of Lost,
Inspection Report for Property Transfer Equipment Ledger
Stolen, Damaged or
Unserviceable Report
Property
Destroyed Property Card

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 Custodian
Property Inspector
Property Custodian receives the PPE
inspects and verifies
signs “Received” of from Property
the PPE and signs the
the DR and prepares Inspector and signs
“Inspection” column of
the IAR the “Acceptance”
the IAR
column of IAR

Property Custodian Property


Accounting unit
records the PPE in the Division/Unit
prepares JEV
Property Card prepares DV

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 receives Property Custodian
Requesting
the RIS and determines prepares the PAR based
Office/Personnel
the availability of the on the approved RIS
prepares the RIS requisitioned PPE

Requesting office signs


Accounting Unit Property Custodian the “received by”
records the issuance of portion of PAR and RIS
prepares JEV
PPE in the Property Card and checks the received
PPE
PPELC Keeper records
the 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