NAME: RENELLE HABAC SECTION: CBET-01-601P

REFLECTION ON THE GAM VOLUME I, CHAPTERS 16, 17, 18

1. What needs to be remembered for each chapter and Why?

CHAPTER 16 – THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

In this chapter we will learned how important the foreign exchange rate not only
to our government but as a whole. Exchange rate in simple word is the price of
one currency in terms of another currency. An exchange rate between two currencies is
the rate at which one currency can be exchanged for another. Understanding this
foreign exchange rates is one of the most important determinants of a country's relative
level of economic health. A higher-valued currency makes a country's imports less
expensive and its exports more expensive in foreign markets.

Also remember that Philippine peso strengthened to a nearly 4-year high of

P48.92 to $1 on Tuesday, August 11, 202, as the global economy suffers from
the recession triggered by the coronavirus pandemic. This is the strongest for the local
currency since it closed at P48.66 against the greenback on November 10, 2016. The
lack of dollar demand, as well as the pandemic’s impact on the global economy, was
among the reasons cited by Union Bank chief economist Carlo Asuncion for the peso's
strength. A strong peso means that the Philippines can purchase imports at a more
attractive rate. But it also means that the country's exports would not be enticing for
other countries, since these would be more expensive. Moreover, Filipino families
relying on overseas remittances will get less due to the peso's strength.

CHAPTER 17 - BORROWING COSTS

Pursuant to Section 2.a, Chapter 17 of the Government Accounting Manual for

National Government Agencies (GAM for NGAs), borrowing cost is defined as interest
and other expenses incurred by an entity in connection with the borrowing of funds.
(Par. 5, PPSAS 5) Borrowing cost may include, among others, the interest on bank
overdrafts and short-term and long-term borrowings.

We must also remember when we capitalized borrowing cost which shall be

recognized as an expense in the period in which they are incurred, except to the extent
that they are capitalized (alternative treatment). Borrowing costs that are directly
attributable to the acquisition, construction, or production of a qualifying asset shall be
capitalized as part of the cost of that asset. While, a qualifying asset is an asset
that necessarily takes a substantial period of time to get ready for its intended use or
sale. (Par. 5, PPSAS 5)
NAME: RENELLE HABAC SECTION: CBET-01-601P

Borrowing costs shall be capitalized when it is probable that they will result in
future economic benefits or service potential to the entity and the costs can be
measured reliably. (Pars. 17, 18 & 19, PPSAS 5)

For loans borrowed directly by the NGAs, the allowed alternative treatment shall

be used and applied consistently to all borrowing costs that are directly attributable to
the acquisition, construction, or production of all qualifying assets of the entity. (Par. 20,
PPSAS 5)

While the borrowing cost that is eligible for capitalization in specific borrowings is
to the extent that funds are borrowed specifically for the purpose of obtaining a
qualifying asset, the amount of borrowing costs eligible for capitalization on that asset
shall be determined as the actual borrowing costs incurred on that borrowing during the
period, less any investment income on the temporary investment of those borrowings.
While, in the general borrowings is to the extent that funds are borrowed generally and
used for the purpose of obtaining a qualifying asset, the amount of borrowing costs
eligible for capitalization shall be determined by applying a capitalization rate to the
outlays on that asset. The capitalization rate shall be the weighted average of the
borrowing costs applicable to the borrowings of the entity that are outstanding during
the period, other than borrowings made specifically for the purpose of obtaining a
qualifying asset. The amount of borrowing costs capitalized during a period shall not
exceed the amount of borrowing costs incurred during that period. (Pars. 23 and 25,
PPSAS 5)

CHAPTER 18 – PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT

ASSETS

We must remember that a provision is a liability of uncertain timing or amount.

While, A contingent liability is: (a) A possible obligation that arises from past events and
whose existence will be confirmed only by the occurrence or nonoccurrence of one or
more uncertain future events not wholly within the control of the entity; or (b) A present
obligation that arises from past events but is not recognized because: (i) It is not
probable that an outflow of resources embodying economic benefits or service potential
will be required to settle the obligation; or (ii) The amount of the obligation cannot be
measured with sufficient reliability. And, a contingent asset is a possible asset that
arises from past events and whose existence will be confirmed only by the occurrence
or nonoccurrence of one or more uncertain future events not wholly within the control of
the entity. By knowing this will help our assessment in the risk such as
Recording contingent liabilities ensure that the government and non-government
organizations are ready for any emergency in the future. Recording such liabilities help
to correctly asses the financial position of the economy.
NAME: RENELLE HABAC SECTION: CBET-01-601P

2. What is your take away from each of these chapters? Why?

In chapter 16, my take away special this crucial time is that exchange rate
pressures in the COVID-19 pandemic are an important signal to global policymakers of
underlying economic stress. Market commentary has focused on the strength of the US
dollar, but the dollar has moved little against the other main reserve currencies such as
the euro and the yen. Rather, it is the currencies of many emerging markets and energy
exporters that have fallen sharply against the reserve currencies. And, these affected
countries may wish to consider direct coordinated intervention in foreign exchange
markets if these unwelcome depreciations persist or intensify. Any intervention should
be mutually agreed between the buying and the selling governments. Countries with
strong currencies should not be buying each other’s currency in an attempt to deflect
appreciation elsewhere. Rather, countries with strong currencies should be buying
currencies that have experienced excessive and unwelcome depreciations.
Interventions should not be undertaken to achieve any specific level of exchange rates,
but rather to lean against disorderly movements. I also realized how this pandemic
affects the foreign exchange rate which gives a domino and continuous effects not just
in government but the citizen as well specifically those Filipino families relying
on overseas remittances which will get less because of the peso's strength.

In the chapter 17 which talks about borrowing cost, I realized that the reason why
the government has to borrow is that that it can enable higher spending without having
to increase taxes. The annual amount the government borrows is known as the budget
deficit. The total amount the government has borrowed is known as the national debt or
public sector debt. They also borrow because of very low-interest rates, especially
during an economic downturn. This is because people have confidence government
bonds are secure and so are willing to lend at low-interest rates.

In chapter 18, my take away is that the scope paragraph in IPSAS/PPSAS 19

makes it clear that while provisions, contingent liabilities and contingent assets arising
from employee benefits are excluded from the scope of the Standard, the Standard,
however, applies to provisions, contingent liabilities and contingent assets arising from
termination benefits that result from a restructuring dealt with in the Standard.