Session 4 Acctng For Exp Disb Rel Trans

NGAS – Corporate 42
ACCOUNTING FOR
EXPENDITURES, DISBURSEMENTS AND
RELATED TRANSACTIONS
Session Overview
In a regular government agency most of the transactions involve

the receipt and disbursement of cash. The cash transactions
affect every classification within the financial statements -
assets, liabilities¸ government equity, income and expenses. If
the financial statements are to be reliable, it is essential that cash transactions are
recorded correctly.
This session covers the accounting for expenditures, disbursements and related
transactions under the NGAS. It also includes a presentation on the standards pursuant
to the International Accounting Standards. The discussions will focus on policies and
the various expenses, modes/types of disbursements that are made and the illustrative
journal entries relative to the various expenditures and disbursements.
Learning Objectives
At the end of the session, the participants shall be able to tell:

 the general policies on expenditures, disbursements and related transactions;
 the different modes and types of disbursements made by the corporate agency;
 the journal entries for each type of disbursement;
 the different related transactions and the international accounting standards being
complied with;
 the forms and records, books of accounts used and maintained; and
 the disbursement and inventory processes.
BASIC PRINCIPLES IN GOVERNMENT EXPENDITURES
1. No money shall be paid out of any public treasury/depository except in pursuance

of an appropriation law or other specific statutory authority;
2. Government funds or property shall be spent or used solely for public purposes;
3. Fiscal responsibilities shall, to the greatest extent, be shared by all those
exercising authority over the financial affairs, transactions, and operations of the
government agency;
4. Disbursements or disposition of government funds or property shall invariably
bear the approval of the proper officials;
5. Claims against government funds shall be supported with complete
documentation; and
6. Generally accepted accounting principles and practices as well as sound
management and fiscal administration shall be observed.
Session 4.0 PROFESSIONAL DEVELOPMENT CENTER

September, 2004 COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City
Difference Between Expenditures and Disbursements
To put our discussions in their proper context, let us distinguish expenditures from
disbursements by defining expenditures as the charges/utilization of the approved
budget by a government corporation or the amounts actually expended for goods
delivered or services rendered whether paid or not and disbursements as the payments
made for such obligations. Disbursements also constitute all cash paid out during a
given period either in currency (cash) or by check.
Basic Requirements Applicable to All Types of Disbursements
1. Existence of a lawful and sufficient appropriation certified as available by the

Budget Officer;
2. Existence of a valid obligation certified by the Chief Accountant;
3. Legality of the transactions and conformity with rules and regulations;
4. Approval of the expense by the Chief of Office or by his duly authorized
representative; and
5. Submission of proper evidence to establish the claim.
Modes of Disbursements of Government Funds
1. By Checks
a.Commercial check
2. By Cash
a.Cash Advance granted to Disbursing Officer
b. Petty Cash Fund
Disbursements by Checks
These are issued by GOCCs chargeable against their checking accounts maintained
with Authorized Government Depository Banks (AGDBs). These are covered by
income/receipts authorized to be deposited with AGDBs and funding checks received
by branch offices from home office. Checks shall be drawn only on duly approved
DVs or Payrolls.
Disbursement by Cash
Disbursements are made out of cash advances of regular and special disbursing
officers for personal services, petty expenses and MOOE for field operating
requirements.
Types of Transactions
The commercial checks/cash may be used for payment of the following types of
transactions:
1. Personal services
2. Maintenance and other operating expenses
3. Financial expenses
4. Purchase and/or construction of PPE such as building and structures, land,
land improvements, equipment, etc., investments in stocks, bonds, intercorporate
stock investment and other investments charged against the budget for capital
outlay
5. Other transactions
a.Cash transfer to another agency to implement a project of the corporation
b. Guaranty deposits/performance bond
c.Cash advances
d. Stale checks
e.Transfer of property, plant and equipment
f. Loss of inventory and property
To demonstrate the recording of the different types of disbursements, let us consider

the following:
PERSONAL SERVICES
Payment for salaries, wages and other remunerations to the personnel of the
corporations may be made through the following:
1. Payroll Fund in the hands of a Disbursing Officer (DO) granted as cash advance.
Payments are made by the DO in cash to the employees;
2. Payroll Fund deposited in an authorized depository bank, withdrawal by the
employees through the automated teller machine (ATM); and
3. Direct payment to employees by individual checks.
Transactions Accounting Entries Code Dr Cr

1. Regular Salaries and Other Allowances
1.1 Set-up of the Salaries & Wages –
amount due the Regular 701 20,000
employees Additional 712 500
Salaries & wages Compensation 711 500
P20,000 PERA 749 500
Additional Other Personal 412 1,000
compensation 500 Benefit 413 2,200
PERA 500 Due to BIR 414 100
Other Personal Due to GSIS 415 187
Benefit 500 Due to PAG-IBIG
Total P21,500 Due to 403 17,513
Less: PHILHEALTH 439 500
Withholding tax P Due to Officers
1,000 and Employees
GSIS Contributions Other Payables
2,200 To record
PAG-IBIG salaries due for the
Contributions 100 period
PHILHEALTH
Contributions 187

Other Payables 500
Total 4,347
Net amountP17,513
1.2 Set-up of the Payroll Cash-Disbursing 103 17,513
Fund and grant of Officers 111 17,513
cash advance to Cash in Bank –
disbursing officer LCCA
To set up the
Payroll Fund and
grant of cash
advance to
disbursing officer.
1.3 Payment of salaries Due to Officers and
and wages and Employees 403 17,513
liquidation of cash Cash-Disbursing
advance Officers 103 17,513
To record
payment of salaries
& wages and
liquidation of cash
advance
1.4 Set-up of Life and Retirement
government shares Insurance 731 2,400
for life and Contributions 732 100
retirement PAG-IBIG 733 187
insurance, the PAG- Contributions 734 400
IBIG, PHILHEALTH PHILHEALTH 413 2,800
and ECC Contributions 414 100
contributions ECC Contributions 415 187
Due to GSIS
Due to Pag-ibig
Due to PhilHealth
To record
government shares
for life and
retirement
insurance, the Pag-
ibig, PhilHealth and
ECC contributions
1.5 Remittance of salary Due to BIR 412 1,000
deductions and Due to GSIS 413 4,600
government share: Due to Pag-ibig 414 200
BIR 1,000 Due to PhilHealth 415 374
GSIS 4,600 Cash in Bank – 111 6,174
Pag-ibig 200 LCCA
PhilHealth 374 To record
Total 6,174 remittance of salary
deductions and
government shares

2. Clothing Allowance and Subsistence, Laundry and Quarter
Allowances
2.1 Grant of cash Cash-Disbursing 103 10,000
advance for the Officers 111 10,000
clothing allowance Cash in Bank –
and SLQA of LCCA
Officers P10,000 To record the
Clothing Allowance grant of cash
6,000 advance for the
Subsistence, clothing allowance
Laundry and and SLQA
Quarter Incentive
Allowance 4,000
2.2 Submission by the Clothing/Uniform 715 6,000

disbursing officer of Allowance
the liquidation Subsistence, 716 4,000
documents Laundry and
supporting his Quarter Allowance 103 10,000
payment of clothing Cash-Disbursing
allowance and Officers
SLOA. To record the
liquidation of the
disbursing officer on
the cash advance for
clothing and SLQA
3. Overtime Pay
3.1 Payment of Overtime and Night 723 2,500
overtime services by Pay 412 250
the disbursing officer Due to BIR
Cash-Disbursing 103 2,250
Officers
To record
payment of overtime
by the disbursing
officer
4. Payment of Retirement Benefits
4.1 Payment of the Retirement Benefits- 740 190,500
retirement benefit Civilian 111 190,500
due Mr. Abraham Cash in Bank –
Santos. Complete LCCA
supporting To record
documents payment of
submitted. retirement benefit to
Mr. Santos


5. Payment of Year-end Bonus and
Terminal Leave
5.1 Payment of year- Year-end Bonus 725 20,000
end benefits thru the Cash Gift 724 5,000
ATM Productivity 717 2,500
Incentive Allow 111 27,500
Cash in Bank –
LCCA
To record
payment of year-end
benefits thru ATM
5.2 Payment of terminal Terminal Leave 742 15,000

leave benefits Benefits 111 15,000
Cash in Bank -
LCCA
To record
payment of terminal
leave benefits to Mr.
Santos thru check
MAINTENANCE AND OTHER OPERATING EXPENSES
Asset Method/Perpetual Inventory Method
Under the NGAS, the Asset Method shall be followed in recording disbursements
when expenditures apply to more than one accounting period. Examples of these
disbursements are those paid for insurance, interest, and rent where the prepaid (asset)
accounts shall be debited. The expense shall be recorded upon
utilization/consumption.
Purchases of supplies and materials for stock, regardless of whether or not they are
consumed within the accounting period, shall be recorded under the appropriate
inventory accounts following the Perpetual Inventory Method. In costing the
inventory issued and its ending balance, the Moving Average Method is used which
provides a new unit cost after each purchase. Like the prepaid expenses, the expense
shall be taken up upon utilization/consumption.
However, supplies and materials purchased out of the Petty Cash Fund for immediate
use or on emergency shall be taken up as outright expense. In this connection, the
petty cash shall not be used to purchase supplies for stock.
Maintenance of Supplies Ledger Cards
When Perpetual Inventory Method is followed, detailed perpetual inventory records,

in addition to the usual ledger accounts, are maintained for each inventory item, and
an inventory control account is maintained in the general ledger on a current basis.
The perpetual inventory record for each item must provide information for recording
receipts, issues and balances on hand, both in units and peso amounts. It also includes
information on the re-order point and the number of days to consume a specific item
of inventory. With this information, the physical quantity and the valuation of goods
on hand at any time are available from the accounting records. (Please refer to
succeeding topics relative to the International Accounting Standards on Inventory
and the Inventory Process.)
Please take note that the account “Inventories – Semi-Expendable Supplies,

Containers and Property” no longer exist in the New Chart of Accounts. Further, the
policy of setting a benchmark of P10,000 for purchases, wherein purchases less than
P10,000 are considered semi-expendable, is totally revoked. Upon purchase, such
semi-expendable items shall be taken up either as PPE or as inventory items
regardless of cost.
Recognition of Liability
Under the NGAS, a liability shall be set up as “Accounts Payable” or the appropriate
liability account only upon receipt of goods and/or rendition of the services. Under the
matching principle, the payable account for all expenses shall be recognized at the end
of the period when expenses are already incurred although not yet paid. Please refer
to session on Trial Balance, Adjusting and Closing Entries.
Accounting Entries to Record Disbursements Using the Corporate Budget for

Maintenance and Other Expenses are shown below:
Accounting
Transactions Code Dr Cr
Entries
1 Travel
1.1 Receipt of claim for Due from
local travel to Region Officers and 123 8,000
III of Angela dela Employees 111 8,000
Cruz P8,000 and Cash in bank
grant of cash – LCCA
advance To record the
grant of cash
advance to
Angela dela
Cruz for her
travel to Region
III
1.2 Liquidation Report Traveling 751 8,000

submitted by Ms. Expenses–Local
dela Cruz Due from 123 8,000
Officers and
Employees

Accounting
Entries
To record
the liquidation of
the cash
advance of
Angela dela
Cruz granted for
travel
1.3 Based on the Traveling 751 800
liquidation report in Expenses–Local
1.2, an additional Due to 403 800
claim of P800 is due Officers and
to Ms. dela Cruz for Employees
her extended stay in To record
Region III caused by of additional
typhoon. claim of P800 to
Angela dela
Cruz
1.4 Payment of Due to Officers
additional claim and 403 800
P800. Employees 111 800
Cash in bank
– LCCA
To record
payment of the
additional claim
Note: All travel expenses including reimbursements charged to the
corporate budget shall be posted in the Budget and
Utilization Worksheet.
2 Training Expenses
2.1 Payment of seminar Training 753 5,000
fees of the Expenses 111 5,000
following: Cash in Bank
Pia Arroyo 2,500 – LCCA
Flor Cruz 2,500 To payment
of seminar fees
for Arroyo and
Cruz
3 Supplies and Materials

Spare Parts Posted in the
3.1 Issuance of PO for Budget and
spare parts P7,500 Utilization

Accounting
Entries
Worksheet
3.2 Receipt of items with Spare Parts 167 7,500
the charge invoice Inventory 401 7,500
specifying the term Accounts
2/10 net 30 Payable
To record
delivery of
spare parts per
Invoice
No.____dated
____
3.3 Payment of the Accounts 401 7,500
delivered items Payable 412 225
Due to BIR 111 7,275
Cash in Bank
– LCCA
To record
payment of
delivered spare
parts
3.4 Issuance of spare Repairs and
parts worth P 912 Maintenance– 841 912
from stock used for Motor Vehicle 167 912
repairs of motor Spare Parts
vehicle Inventory
To record
issuance of
spare parts from
stocks for repair
of motor vehicle
Office Supplies
3.5 Issuance of PO for Posted in the
office supplies Budget and
P 35,000. Utilization
Worksheet
3.6 Acceptance of Office Supplies 155 35,000
delivery Inventory 401 35,000
Accounts
Payable
To record
receipt of office
supplies
3.7 Payment of supplies Accounts 401 35,000
delivered Payable 412 1,050
Due to BIR 111 33,950
Cash in Bank

Accounting
Entries
– LCCA
To record
payment of
supplies
delivered
3.8 Withdrawal of office Office Supplies 755 240
supplies for office Expenses
use P240 Office 155 240
Supplies
Inventory
To record
withdrawal of
office supplies
by the
accounting
office
3.9 Remittance of Due to BIR 412 1,050
withholding tax Cash in Bank 111 1,050
– LCCA
To record
remittance of
withholding tax
3.10 Receipt of Accountable
accountable forms Forms 156 6,900
(Official Receipts) Inventory 416 6,900
from the National Due to Other
Printing Office P NGAs
6,900 To record
receipt of
accountable
forms from NPO
3.11 Payment of Due to Other 416 6,900
accountable forms NGAs 111 6,900
Cash in Bank
– LCCA
To record
payment of
NPO
4 Petty Cash Fund

4.1 Set-up of petty cash Petty Cash 104 6,000
fund for Fund 111 6,000
miscellaneous Cash in Bank

Accounting
Entries
expenses P 6,000 – LCCA
To set up
the petty cash
fund
4.2 Replenishment of Office Supplies 755 2,500
the petty cash fund Expenses 751 50
for the following Traveling
expenses: Expenses–Local 823 100
Office Supplies Repairs and 771 80
P 2,500 Maintenance – 111 2,730
Transportation fare IT Equipment
50 and Software
Repairs of IT Postage and
Equipment 100 Deliveries
LBC air cargo Cash in Bank
80 – LCCA
Total To record
P 2,730 the
replenishment
of the petty
cash fund
4.3 Submissi Office Supplies 755 450
on of Petty Cash Expense 751 130
Vouchers at year Traveling 104 580
end. No Expense –
replenishment was Local
made Office Petty Cash
Supplies Fund
P 450 To record
Traveling the petty cash
130 expenses at
year-end
4.4 Replenis Petty Cash 104 580
hment of PCF made Fund 111 580
in the ensuing year Cash in
Bank-LCCA
To record
replenishment
of PCF
4.5 Return of Cash-Collecting 102 6,000

unused PCF due to Officers 104 6,000
the transfer of Petty Petty Cash
Cash Custodian to Fund
another branch To record

Accounting
Entries
Official receipt the full
issued for the refund liquidation of the
Petty Cash
Fund
5 Rent
5.1 Signing of the Posted in the
contract for the one Budget and
year rental of office Utilization
space with 3 months Worksheet
advance payment of
P3000 starting
November
5.2 Payment of advance Prepaid Rent 177 3,000
rent. Cash in Bank 111 3,000
(Please refer also to – LCCA
session on Adjusting To record
the Accounts for the advance
accrued expense.) payment of
rental for the
office space.
6 Utilities
6.1 Receipt of bills: Posted in the
MERALCO Budget and
P1,500 Utilization
PLDT Worksheet
2,000
6.2 Set-up of liability Electricity 767 1,500
account Expenses
Telephone 772 2,000
Expenses– 401 3,500
Landline
Accounts
Payable
To record
the electricity
and telephone
bill for the
month
6.3 Payment of bills Accounts 401 3,500

Payable 111 3,500
Cash in Bank
– LCCA
To record

Accounting
Entries
the payment of
electric and
telephone bills
7 Subscriptions
7.1 Subscribed to three Posted in the

leading national Budget and
dailies (Manila Utilization
Bulletin, Daily Worksheet
Inquirer and
Philippine Star @
7,000 each)
7.2 Payment of the Subscription 786 21,000
subscription for one Expenses 111 21,000
year – January to Cash in Bank
December – LCCA
To record
payment of
subscription to
three national
dailies
8 Gasoline, Oil and Lubricants

8.1 Receipt of the billing Posted in the
of gas station for the Budget and
month Utilization
Worksheet
8.2 Set-up of liability Gasoline, Oil &
Lubricant 761 58,050
Expenses 401 58,050
Accounts
Payable
To set up
payable account
8.3 Payment of liability Accounts 401 58,050
Payable 111 58,050
Cash in Bank
– LCCA
To record
payment to the
gas station
9 Professional Fee
9.1 Receipt of bill from Posted in the
COA P20,000 Budget and
Utilization

Accounting
Entries
Worksheet
9.2 Set-up liability Auditing 792 20,000
Services 401 20,000
Accounts
Payable
To record
the receipt of bill
from COA
9.3 Payment of the bill Accounts 401 20,000
Payable 111 20,000
Cash in Bank
– LCCA
To record
payment of COA
Bill
10 Repairs and Maintenance
10.1 Enter into contract Posted in the
for the repair of the Budget and
office building Utilization
P100,000 Worksheet
10.2 Receipt of bill of the Repairs and
contractor on the Maintenance – 811 85,000
final completion of Office Buildings 401 85,000
the repair Accounts
Payable
To record
the final billing of
the contractor on
the repair of the
office building
10.3 Full payment to the Accounts 401 85,000
contractor Payable 111 82,450
Cash in Bank 412 2,550
– LCCA
Due to BIR
To record
full payment to
the contractor

amount due to BIR Cash in Bank 111 2,550
– LCCA
To record

Accounting
Entries
remittance of
tax withheld
11 Taxes, Duties and Licenses
11.1 Charge registration Posted in the

of vehicles against Budget and
corporate budget Utilization
Worksheet
11.2 Payment of Taxes, Duties 891 5,500
registration of and Licenses 111 5,500
vehicles at the Land Cash in Bank
Transportation Office – LCCA
To
payment of
registration fees
of corporate
cars
FINANCIAL EXPENSES
These are the expenses, which are not used, in the actual operation of the agency such
as interest expenses, bank charges, commitment fees, documentary stamp tax, etc.
Accounting
Entries
1 Bank Charges
1.1 Receipt of bank Bank Charges 971 1,000
debit memo for the Cash in Bank 111 1,000
cost of bank checks – LCCA
ordered by the To record
corporation P 1,000 bank charges
per LBP debit
Memo dated ----
2 Interest Expenses
2.1 Receipt of bill P Interest 975 2,500
2,500 Expenses 409 2,500
Interest
Payable
To record
the liability for
interest
incurred on
loans secured
2.2 Payment of Interest 409 2,500
Interest Payable 111 2,500
Accounting
Entries
Cash in
Bank – LCCA
To record
payment of
interest due to
loans secured
with DBP
Note: All expenses incurred shall have corresponding charges against the
corporate budget and these charges shall be posted to the Budget and Utilization
Worksheet.
PROPERTY, PLANT AND EQUIPMENT
Accounting Policies
Definition of Property, Plant and Equipment (PPE)
PPE are tangible assets that are held by an enterprise for use in production or supply
of goods or services, for rental to others, or for administrative purposes, and are
expected to be used during more than one period. (IAS No. 16)
Recognition of PPE
An item of PPE should be recognized as asset when:
1. it is probable that future economic benefits associated with the asset will flow to
the enterprise; and
2. the cost of the asset to the enterprise can be measured reliably.
In determining whether an item satisfies the first criterion for recognition, an

enterprise needs to assess the degree of certainty attaching to the flow of future
economic benefits on the basis of the available evidence at the time of initial
recognition.
The second criterion for recognition is usually readily satisfied because the exchange
transaction evidencing the purchase of the asset identifies its cost.
Initial Measurement of PPE
An item of PPE which qualifies for recognition as an asset should initially be

measured at its cost.

Component of Cost
As a benchmark treatment, the cost of an item of PPE comprises its purchase price,
including import duties and nonrefundable purchase taxes and any directly
attributable costs of bringing the asset to working condition for its intended use. Any
trade discounts and rebates are deducted in arriving at the purchase price.
Examples of directly attributable costs are:
1. cost of site preparation;

2. initial delivery and handling cost;
3. installation costs;
4. professional fees such as architect and engineers; and
5. estimated cost of dismantling and removing the asset and restoring the site, to the
extent that it is recognized as a provision under IAS 37.
The examples of costs which are expensed rather than recognized as component of the
cost of property, plant and equipment are:
1. administrative and other general overhead costs;

2. start-up and similar pre-production costs, unless they are necessary to bring the
asset to its working condition; and
3. initial operating losses incurred prior to an asset achieving planned performance.
Acquisition of Property
There are many ways of acquiring a property and each presents a costing problem for
accounting purposes, namely:
1. Cash basis;
2. On account subject to cash discount;
3. Installment basis;
4. Issuance of capital stock or bonds;
5. Dissimilar/Similar exchange;
6. Donation;
7. Capital/Financial Lease; and
8. Construction.
Acquisition on cash basis
The cost of asset includes the cash paid plus incidental costs such as freight,
installation costs and other cost necessary in bringing the asset to working
condition for its intended use.
For instance, a machinery is acquired at a cash price of P300,000. In addition to

the cash payment, the company pays for the following costs in connection with the
machinery: transportation, P20,000; installation cost, P10,000; and cost of trial
runs, P5,000. The entry to record the acquisition of the machinery is as follows:
Account
Account Title Code Debit Credit
Machineries 226 335,000
Cash-Local Currency, Current 111 335,000
Account
To record cash purchase
of a machinery
Moreover, when several assets are acquired at a “basket price” or lump sum
price”, it is necessary to apportion the single price to the assets acquired in order
to have a proper basis for computing depreciation. The allocation is done on the
basis of relative fair market value or appraised value of the assets acquired.
For example, land and office building are acquired at a single cost of P5,500,000.
At the time of acquisition, the land has a fair value of P1,000,000 and the
building, P4,000,000. The single cost is allocated as follows:
Fair Value Fraction Allocated cost

Land 1,000,000 1/5 1,100,000
Building 4,000,000 4/5 4,400,000
5,000,000 5,500,000
The acquisition of the land and building is recorded as follows:
Account
Land 201 1,100,000
Office Buildings 211 4,400,000
Cash-Local Currency,
Current Account 111 5,500,000
To record cash
purchase of land and
building
Acquisition on account
When an asset is acquired on account subject to a cash discount, the cost of the
asset is equal to the invoice price minus the discount regardless of whether the
discount is taken or not.
Cash discounts are generally considered as reduction of cost and not as income.
Hence, if the discount is not taken, the same shall be recognized as Other
Maintenance and Operating Expenses.
For instance, assume that equipment is purchased for P100,000, 2/10, n/30.
Account
1. Office Equipment 221 98,000
Accounts Payable 401 98,000
To record the
acquisition
2. Accounts Payable 401 98,000
Cash-Local Currency, 111 98,000
Current Account
To record payment
within the discount
period
3. Accounts Payable 401 98,000

Purchase Discount Lost - 2,000
(For conversion to
revised chart of
accounts)
Current Account
To record payment
beyond the discount
period
Acquisition on installment basis
When payment for item of property, plant and equipment is deferred beyond
normal credit terms, its cost is the cash price equivalent.
Thus, if an asset is offered at a cash price and at an installment price and is

purchased at the installment price, sound accounting practice dictates that the asset
should be recorded at the cash price.
The excess of the installment price over the cash price is treated as an interest or
financing cost to be amortized over the period of credit.
For instance, assume that a machinery is purchased at an installment price of

P350,000. The terms are P50,000 down and the balance is payable in three equal
annual installments. The cash price of the machinery is P290,000. A promissory
note is issued for the installment balance of P300,000.
The journal entries are:
Account
1. Machinery 226 290,000
Deferred Charges 182 60,000
Other Long-Term 450 300,000
Liabilities
Current
Account
To record the
acquisition of the machinery
2. Other Long-Term Liabilities 450 100,000

Current
Account
To record the first
installment payment
3. Interest Expenses 975 20,000

To amortize the discount
on the notes payable at the
end of each month
If an asset is acquired by installment and there is no available cash price, the asset
is recorded at an amount equal to present value of all payments using an implied
interest rate.
For instance, assume that a machinery is acquired at an installment price of

P700,000. The terms are P100,000 down and the balance payable in three equal
annual installments. A note is issued for the balance of P600,000. There is no
available cash price for the machinery.
Using an implied interest rate of 10%, the present value of an ordinary annuity of
1 is 2.487 for three year periods. In this case, the cost of the machinery is
computed as follows:
Down payment 100,000

Present value of note payable (200,000 x 2.487) 497,400
Total cost 597,400
Notes payable 600,000

Present value of notes payable 497,400
Implied interest 102,600
The journal entries are:
Account
1. Machinery 226 597,400
Cash-Local
Currency, Current 111 100,000
Account 450 600,000
Other Long-Term
Liability
To record the
acquisition of the
machinery
2. Other Long-Term 450 200,000

Liabilities
Cash-Local 111 200,000
Currency, Current
Account
To record the first
installment payment
3. Interest Expenses 975 49,740

To amortize the
discount on notes
payable
Issuance of capital stock or bonds
In general, property acquired in exchange for shares or other securities in the

enterprise should be recorded at its fair value, or fair value of the securities issued,
whichever is more clearly evident.
In SFAS No. 18, the ASC concludes that if shares are issued for consideration
other than actual cash, the proceeds should be measured by the fair value of the
consideration received. Fair value is determined by making reference to the
following:
1. Cash transactions of the same or similar assets;

2. Quoted market price; and
3. Independent appraisals.
Therefore, where a property is acquired through the issuance of capital stock or

bonds the same should be recorded at an amount equal to the following in the
order of priority:
1. Fair value of the property received;

2. Fair value of the capital stock or bonds; or
3. Par value of the capital stock or face value of the bonds.
Dissimilar Exchange – no cash is involved
If a property is acquired in a dissimilar exchange and there is no cash involved, its

cost is usually determined by reference to the following in the order of priority:
1. Fair value of property given;

2. Fair value of property received; or

3. Cost or book value of property given.
Illustration:
An investment in stock costing P500,000 is exchanged for an equipment with a
fair value of P550,000. At the time of exchange, the investment has a fair value of
P550,000.
a. The fair value of investment is used:

Account
Office Equipment 221 530,000
Investments in Stocks 192 500,000
Gain/Loss on Sale of 682 30,000
Disposed Assets
To record the gain on sale of
stocks
b. The fair value of equipment is used:
Account
Disposed Assets
To record the gain on
sale of stocks
c. The cost of the investment is used:

Account
To record acquisition of
equipment
Dissimilar Exchange – cash is involved
The SFAS/IAS 16 provides that “the cost of an item of property obtained through
exchange is measured at the fair value of the asset received which is equivalent to
the fair value of asset given up adjusted by the amount of any cash or cash
equivalents transferred.”
Illustration:
APG Company owns an equipment with book value of P350,000 and fair value of
P400,000. This equipment is exchanged for a dissimilar used equipment with fair
value of P500,000. APG Company pays P100,000 representing the difference in
fair value, P500,000 minus P400,000.
The entry to record dissimilar exchange is:

Account
Office Equipment (New) 221 500,000
Office Equipment (Old) 221 350,000
Cash- Local Currency, 111 100,000
Current Account
Disposed Assets
To record the
exchange of dissimilar
equipment
Similar Exchange
Under SFAS/IAS 16, “An item of property, plant and equipment may be acquired
in exchange for a similar asset that has a similar use in the same line of business
and which has a similar fair value”.
Thus, two conditions are required for a similar exchange, namely:
1. The assets exchanged have similar use in the same line of business.
Assets are said to be similar in the sense that they are of the same general type,
perform the same function or are employed in the same line of business.
Examples of similar exchange include the exchange of inventory for

inventory, exchange of productive asset for similar productive asset, exchange
of aircraft, hotels, service station and other real estate.
2. The assets have similar fair value.
Similar Exchange – no cash is involved
The SFAS/IAS 16 provides that an item of property acquired in non-monetary

similar exchange, meaning no cash is involved, is recorded at the carrying amount
of the asset given up. No gain or loss is recognized on the transaction because the
earning process is incomplete.

However, the fair value of the asset received may provide evidence of impairment
in the asset given up. In this case, the asset given up is written down and this
written down value is assigned to the new asset.
Accordingly, if the fair value of the asset received is lower than the book value of
the asset given and this circumstance provides an evidence of impairment of the
asset given, an impairment loss, rather than loss on the exchange, is recognized.
IAS 16 states that PPE items should be periodically reviewed for possible
impairment. Impairment is defined as having occurred when an assets recoverable
amount fell below its carrying value. The standard on impairment requires that
the recoverable amount of tangible and intangible assets be estimated, for purpose
of identifying and measuring impairments, whenever there are indications that
such a circumstance might exist.
Illustration 1- Book value lower than fair value
JMPG Company owns equipment with the following information:
Office Equipment 1,000,000

Accumulated Depreciation 400,000
Book Value 600,000
Fair Value 700,000
This old equipment is exchanged for a similar used equipment with same fair
value of P700,000. The exchange is recorded a follows:
Account
(New)
Accumulated 321 400,000
Depreciation
Office Equipment 221 1,000,000
(Old)
Illustration 2- Fair value lower than book value

JMPG Company owns equipment with the following information:
Office Equipment 2,000,000

Accumulated Depreciation 400,000
Book Value 1,600,000
Fair Value 1,400,000
This old equipment is exchanged for a similar used equipment with the same
fair value of P1,400,000. Assume the fair value of the asset received indicates
impairment of the asset given, an impairment loss recognized as follows:
Account
Impairment Loss (For - 200,000
conversion)
Accumulated 321 200,000
Depreciation
To record
impairment loss
The exchange is then recorded as follows:
Account
Office Equipment (New) 221 1,400,000
Accumulated Depreciation 321 600,000
Office Equipment (Old) 221 2,000,000
To record the
exchange of an old
equipment with new one
Similar Exchange – cash is involved
The SFAS/IAS 16 provides that “if other assets such as cash are included as part
of the exchange transaction this may indicate that the items exchanged do not
have a similar value.”
However, this accounting standard does not provide for the magnitude or size of
the cash involved. In other words, the specific accounting procedures are not
crystal clear if cash or its equivalent is included in similar exchange transaction.
Donation
ASC SFAS No. 18, paragraph 28, provides that “contributions, including stock of
an enterprise, received from shareholders should be recorded at the fair value of
the items received, with the credit going to additional paid in capital or donated
capital if significant”.
Expenses incurred in connection with the donated asset, like payment of

registration fees, real estate taxes in arrears on the property, and transfer taxes
should be charged to the donated capital account.
ASC SFAS No. 18, paragraph 29, provides that business enterprises sometimes
receive from non-shareholders’ gifts or grants of funds or other assets that are
restricted for property and equipment additions. Capital gifts or grant should be
recorded at their fair value when they are received or receivable. When such
items are received by business enterprise, they are generally subsidies. In the rare
case when such items are not subsidies, the offsetting credit should be to a
liability account until the initial restrictions are met. At the time, they should be
transferred to income or less desirably, to donated capital.
Lease

Under IAS No. 17, a lease is defined as “an agreement whereby the lessor conveys
to the lessee in return for a payment or series of payments the right to use an asset
for an agreed period of time.”
There are two kinds of leases, namely: Operating Lease and Finance or Capital
Lease.
Operating Lease
The operating lease is the rental approach whereby the periodic rental is simply
recognized as rent expense on the part of the lessee and rent income on the part of
the lessor.
A lease bonus paid by the lessee to the lessor in addition to the periodic rental is
treated as prepaid rent expense by the lessee and unearned rent income by the
lessor to be amortized over the lease term.
Leasehold improvements made by the lessee should be depreciated over the life of
the improvements or lease term, whichever shorter.
The leased property remains as an asset of the lessor and consequently, the lessor
bears all ownership or executory costs such as depreciation of leased property,
real property taxes, insurance and maintenance. However, the lessor may pass on
to the lessee the payments for taxes, insurance and maintenance cost.
Costs directly incurred by the lessor for the negotiation of the lease are deferred
and amortized as expense over the lease term. Such direct costs include appraisal
fee of the leased property and finder’s fee or commission.
Any security deposit refundable upon the lease expiration should be accounted for
as an asset by the lessee and a liability by the lessor.
Finance or Capital Lease
Under IAS No. 17, a capital lease is known as a finance lease. A finance lease is a
lease that transfers substantially all the risks and rewards incident to ownership of
an asset. Title may or may not be eventually transferred.
Thus, on the part of the lessee, the capital lease is conceived as a purchase of an
asset and therefore involves the recognition of an asset and the corresponding
liability. Moreover, periodic depreciation on the leased property is to be provided,
and the periodic rental payment is to be treated as payment for the liability and
interest.
On the part of the lessor, the capital lease is conceived as a sale of property which
involves the recognition of a receivable and a revenue. The excess of the gross
rentals over the cost of the property leased is treated as revenue.
Accounting Entries to Record Transactions Relative to Leases

Accounting
Entries
1. Operating Lease – Lessee
782 150,000
1.1 Leased of Rent Expenses 111 150,000
equipment for Cash in
P150,000 annually Bank, LCCA
for 3 years To record
payment for the
rental of
equipment
186 150,000
1.2 Payment of security Guaranty Deposit 111 150,000
deposit of P150,000 Cash in bank,
refundable upon the LCCA
lease expiration To record
security deposit
for the rental of
equipment
177 30,000
1.3 Payment of Prepaid Rent 111 30,000
additional annual Cash in
rental, paid P50,000 Bank, LCCA
as a lease bonus. To record
lease bonus for
the rental of
equipment
782 10,000
1.4 Lease bonus to be Rent Expenses 177 10,000
amortized over 3 Prepaid Rent
years period at To record
P10,000 per annum amortization of
lease bonus for
the year
2. 2. Finance Lease – Lessee
226 303,730
2.1 Acquisition of Machinery 401 303,730
machinery under a Accounts
capital lease. The Payable
present value of To record
annual payment of the capital lease
P100,000 for 4 years at the beginning
using 12% interest of the lease
rate – P303,730 purchase
975 36,448
2.2 Payment made Interest 401 63,552
Annual Rental Expenses 111
-P100,000 Accounts
Interest Exp. Payable
36,448 Cash in 100,000
Bank, LCCA
To record
annual rental for
the year
926 75,932
2.3 Annual depreciation Depreciation – 326 75,932
of machinery. Machinery
(P303,730 / 4 years) Accumulated
Accounting
Entries
Depr. - Machinery
To record
the annual
depreciation of
machineries
Construction
The cost of self-constructed asset is determined using the same principles as for
acquired asset.
The cost of self-constructed PPE should include:
1. Direct cost of materials;

2. Direct cost of labor; and
3. Indirect cost and incremental overhead specifically identifiable or
traceable to the construction.
During construction period, PPE shall be classified and recorded as “Construction

in Progress”. As soon as the construction is completed, the “Construction in
Progress” account shall be transferred to the appropriate asset account.
Savings or loss on construction
Where the actual cost of construction is less than the price at which the
constructed asset can be purchased from outside parties, the difference is not
income but savings. This savings will be realized in future periods by reason of
lower depreciation charges on the asset. Any internal profit is eliminated in
arriving at the cost of self-constructed asset.
Where the actual cost of construction is more than the price at which the asset can
be purchased from outside parties, still the constructed asset should be recorded at
actual cost. The difference is not loss on the construction.
The reason for the above is that there is no assurance that the asset if purchased
will be the same as that constructed.
However, if there is clear evidence that the actual cost is materially excessive and
this is due to construction inefficiency or failures whether due to temporary, idle
capacity or industrial disputes, the excess should be treated as loss chargeable
against management. This is on the theory that future periods should not be
burdened with management inefficiencies or errors.
SFAS/IAS 16 provides that “the cost of abnormal amount of wasted materials,

labor or overhead incurred in the production of self-constructed asset is not
included in the cost of the asset.”

DEPRECIATION AND DEPLETION
Depreciation
The SFAS/IAS 16 defines depreciation as “the systematic allocation of the

depreciable amount of an asset over its useful life.”
Factors of Depreciation
In order to properly compute the amount of depreciation to be charged as expense

during an accounting period, three factors are necessary, namely:
1. Depreciable amount;
2. Residual value; and
3. Useful life.
Depreciable amount
Depreciable amount is the cost of an asset, or other amount substituted for cost in
the financial statements, less its residual value.
Residual value
Residual value is the net amount which the enterprise expects to obtain for an
asset at the end of its useful life after deducting the expected costs of disposal.
Useful life
Useful life is either the period of time over which an asset is expected to be used
by the enterprise, or the number of production or similar units expected to be
obtained from the asset by the enterprise.
Carrying amount
Carrying amount is the amount at which an asset is recognized in the balance

sheet after deducting any accumulated depreciation and accumulated impairment
losses thereon.
Computation and Recording of Depreciation
In the computation of depreciation for PPE, the following provisions in COA

Circulars shall be followed:
COA Circular No. 2003-007 dated December 11, 2003
2.0 The straight line method of computing depreciation for government

property, plant and equipment (PPE) shall be adopted.

3.0 For uniformity in the application of useful life and simplification in it
computation, the Estimated Useful Life of PPE by classification as
presented in Annex A of the Circular shall be used.
4.0 A residual value equivalent to ten percent (10%) of the acquisition

cost/appraisal value shall be deducted before dividing the same by the
Estimated Useful Life.
COA Circular No. 2004-005 dated August 09, 2004
2.0 “Accordingly, any adjustments arising from the revision of the assets’ useful
life to conform with Annex A of COA Circular No. 2003-007 dated
December 11, 2003 shall be charged to the current and subsequent years’
depreciation expense of the particular asset.”
Depletion
Depletion Method
Normally, depletion is computed using the output or production method. Following

the output method, depletion is computed as follows:
The depletable cost of the wasting asset is divided by the units estimated to be
extracted to obtain a depletion rate per unit. The depletion rate per unit is then
multiplied by the units extracted during the year to arrive at the depletion for the
period.
Revision of depletion rate
Changes in estimate are to be handled currently and prospectively, if necessary.

Accordingly, the procedure is to revise the depletion rate on a prospective basis, that
is, by dividing the remaining depletable cost of the wasting asset by the revised
estimate of the productive output.
Revaluation of PPE
IAS 16 establishes two alternative approaches to accounting for fixed assets. The first
of these is the benchmark treatment, under which acquisition or construction cost is
used for initial recognition, subject to depreciation over the expected economic life
and to possible write-down in the event of a permanent impairment in value. The
allowed alternative treatment is to recognize upward revaluations.
IAS 16 requires that if any assets are revalued, all other assets in those groupings or
categories are also to be revalued.

Construction Period Theory
In the recording of infrastructure projects undertaken either by administration or

contract, the Construction Period Theory shall be followed. All expenses such as
taxes, license fees, permit fees, etc., during the construction period shall be
capitalized.
Interest on loans secured for the construction of the project shall be treated as
financial expenses.
Public Infrastructure Projects
Public infrastructure projects for use by the general public such as roads, bridges,
parks, plazas, monuments, etc., shall be classified as Public Infrastructures. During
the construction, the costs for the construction/billings of the contractors shall be
taken up under the “Construction in Progress” account. As soon as the project is
completed, the “Construction in Progress” is closed to the appropriate asset account.
If the public infrastructure project is used in the generation of income, these shall not
be dropped from the books of accounts. Otherwise, these projects shall be dropped
from the books and entered in the Registry of Public Infrastructures (RPI.) Please
refer to Annex E-2.
LOSS OF INVENTORIES AND PPE
Accounting policies on loss of inventories and properties are as follows:
1. Amount of accountability of concerned officer/employee shall be based on

a. Sound Value - for depreciable assets
b. Fair Value - for non-depreciable assets
3. On the basis of the report on loss of assets, drop the book value of the inventory
items and PPE and the net book value and related accumulated depreciation of the
PPE from the books of accounts.
4. Simultaneously, the receivable account of the accountable officer/employee shall

be set up based on the fair value of the inventory and other assets and sound value
of the PPE by debiting the account “Due from Officers and Employees”. The
sound value is computed by deducting the estimated depreciation of the lost asset
based on the replacement cost.
The accounting entries to record the loss of assets are as follows:
Accounting
Entries
1. Discovery of loss Loss of Assets 961 11,200

Cost of Computer Acc. Dep’n– 321 28,800
P40,000 Office Equipment 221 40,000

Accounting
Entries
Acc. Depr. Office
28,800 Equipment
Net book value To record the
P11,200 loss of office
equipment
2. Set up the Due from Officers 123 14,000

accountability of the and Employees 455 14,000
accountable officer Other
at sound value Deferred Credits
Replacement cost To record the
P50,000 loss of office
Acc. Depr. equipment
36,000
Net book value
P14,000
3. If request for relief is Other Deferred 455 14,000

granted Credits
Due from 123 14,000
Officers and
Employees
To record the
relief granted by
the Commission
on Audit
4. Collection from Cash-Collecting 102 14,000

accountable officer if Officers
request for relief is not Due from 123 14,000
granted. Officers and
Employees
To record
collection from
accountable
officer for assets
lost
5. Adjustment of Other Other Deferred 455 14,000

Deferred Credits for Credits 678 14,000
income realized Miscellaneous
Income
To adjust
Other Deferred
Credits account
for income
realized
Additional Accounting Entries to Record Transactions for Capital Outlay

Accounting
Entries
1 Purchase of IT Equipment
1.1 Issuance of PO to Posted in the
dealer for the Budget and
purchase of 10 lap Utilization
top @ P30,000 each Worksheet
1.2 Receipt of the IT Equipment and
computer equipment Software 223 300,000
with charge invoice Accounts 401
Payable 300,000
To record
receipt of 10
laptop computers
1.3 Payment of the Accounts Payable 401 300,000
delivered Due to BIR 412
equipment Cash in Bank– 111 30,000
LCCA 270,000
To record
payment of the
delivered IT
equipment
2 Purchase of Land
2.1 Board authorizes the
No entry
purchase of land
2.2 Signing of the Deed
No entry
of Sale
Posted in the
2.3 Cost of land charged
Budget and
against the approved
Utilization
budget
Worksheet
2.4 Payment for the land Land 201 6,000,000
purchased with TCT Due to BIR 412 150,000
No. 0000625 --- P Cash in Bank– 111 5,850,000
6,000,000 LCCA
To record
payment to the
land owner
2.5 Payment for the Land 201 500,000
relocation of Cash in Bank – 111
squatters LCCA 500,000
To record
payment to
squatters for its
relocation
2.6 Receipt of Transfer
Certificate of Title
(TCT) Ownership
transferred to the No entry
corporation
3 Construction of Office Building by Contract

Accounting
Entries
3.1 Signing of the Posted in the
contract P 1,200,000 Budget and
complete with air Utilization
conditioning unit for Worksheet
P1 5,000
3.2 Advance payment of Advances to 181 180,000
15% of contract Contractors 111 180,000
amount Cash in Bank –
LCCA
To record
payment of
mobilization fee of
15% of the
contract cost
3.3 Receipt of 1st billing Const. in
– 50% Progress–Agency 264 600,000
accomplishment P Assets 401 600,000
600,000 verified by Accounts
management Payable
To record the
billing (50%) of
the contractor
3.4 Payment of 1st Accounts Payable 401 600,000
billing, recoupment Advances to 181 180,000
of advance payment Contractor 426 60,000
and retention fee Guaranty 412 120,000
Deposits Payable 111
Due to BIR 240,000
Cash in Bank –
LCCA
To record
50% payment to
the contractor
recoupment of
advance payment
and charge for
retention fee
3.5 Receipt of 2nd billing Construction in
100% Progress – 264 600,000
accomplishment and Agency Assets 401 600,000
project duly Accounts
accepted by Payable
management To record final
acceptance of the
project
3.6 Payment of the final Accounts Payable 401 600,000
bill Due to BIR 412 120,000
Guaranty 426 60,000
Deposit 111 420,000
Payable
Cash in Bank –
Accounting
Entries
LCCA
To record final
payment to the
contractor
3.7 Recording of the Office Buildings 211 1,188,000
completed building Office Equipment 221 15,000
and the air Construction in
conditioning unit Progress– 264 1,200,000
Agency
Assets
To record the
completed
building in the
books and the air
conditioning unit
installed in it
3.8 Release of the Guaranty Dep. 426 120,000
guaranty deposit Payable 111 120,000
Cash in Bank –
LCCA
To record the
release of the
guaranty deposit
3.9 Remittance of tax Due to BIR 412 240,000
withheld Cash in Bank – 111 240,000
LCCA
To record the
remittance of
taxes withheld
4 Investments
4.1 Purchase of treasury Investments in 191 100,000
bills Treasury Bills 111 100,000
Cash in Bank –
LCCA
To record
investment made
on treasury bills
per Board
Resolution No.
_____ dtd. _____
4.2 Purchase of Bonds Investments in 192 120,000
Bonds 111 120,000
Cash in Bank-
LCCA
To record
investment on
bonds per Bd. Res.
No. ___ dtd. _____
5 General Repair/Construction of Building by Administration

Accounting
Entries
For construction or general repair of building and other structures, etc.
undertaken 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 entry to
“Construction in Progress-Agency Assets” or “Construction in Progress (name
the infrastructure project).” The latter shall also be debited upon payment of
labor for the construction. Upon completion of the project, the Construction in
Progress account is closed to the appropriate property, plant and equipment or
public infrastructure/account. Please take note that only one Construction in
Progress account for the construction of agency assets is used. Subsidiary
ledgers for each classification/category of assets shall be maintained.
5.1 Approval of the
repair of the main
No entry
building for
P100,000
5.2 Issuance of the PO
for building
materials: lumber,
No entry
nails, cement, sand
and gravel, paints,
etc P60,000
5.3 Contract cost Posted in the
changed against Budget and
approved budget Utilization
Worksheet
5.4 Receipt of Construction
168 60,000
construction Materials
401
materials with the Inventory 60,000
charge invoice Accounts
Payable
To record
the delivery
and
acceptance of
construction
materials
5.5 Payment of Accounts 40 60,000
materials delivered Payable 1 ,800
Due to BIR 41 58,200
Cash in 2
Bank–LCCA 11
To record 1
payment for
construction
materials
purchased
5.6 Issuance of Repairs and
materials P 59,000 Maintenance 811 59,000
– Office
59,000
Buildings 168

Accounting
Entries
Construction
Materials
Inventory
To record
issuance of
materials to the
project
5.7 Submission of
payroll for labor
No entry
P38,000 less 10%
for withholding tax
5.8 Set up of liability Repairs and
Maintenance 811 38,000
– Office 412 1,140
Buildings 439 36,860
Due to BIR
Other
Payables
To record
the labor
component of
the project
5.9 Cash advance Cash– 103 36,860
granted to Disbursing 111 36,860
Disbursing Officer Officers
for the payment of Cash in
labor payroll Bank – LCCA
To record
the cash
advance
granted to the
disbursing
officer for the
payment of
labor payroll
5.10 Submission by DO Other Payables 439 36,860
of paid payroll Cash–
Disbursing 103 36,860
Officers
To record
the liquidation of
the disbursing
officer
withholding taxes Cash in 2 1,140
Bank–LCCA 11
To record 1
remittance of
withholding
taxes
6 Major Repair of Aircraft
Accounting
Entries
6.1 Signing of contract Posted in the
for repair Budget and
Utilization
Worksheet
6.2 Receipt of bill from Repairs and
the repair shop Maintenance
843
– Aircraft and 200,000
401
Aircraft 200,000
Ground
Equipment
Accounts
Payable
To record
the billing of
the repair shop
6.3 Payment made Accounts 401 200,000
Payable 412 6,000
Due to BIR 111 194,000
Cash in
Bank – LCCA
To record
full payment
made to the
repair shop for
the repair of
the aircraft
6.4 Remittance of taxes Due to BIR 412 6,000
withheld Cash in 111 6,000
Bank – LCCA
To remit
taxes withheld
to BIR
7 Land and Other Structure
When land and building are purchased together, the cost for each item is
segregated to establish separate accounts so that appropriate depreciation on
the building can be recorded.
7.1 Signing of contract Posted in the
for purchase of land Budget and
and other structure P Utilization
1 million Worksheet
7.2 Assessment of land Other 215 400,000
P 600,000 Structures 201 600,000
Land 401 1,000,000
Accounts
Payable
To record
the purchase of
land with other
structures
7.3 Payment of the land Accounts 401 1,000,000
and other structures Payable 412 30,000
Accounting
Entries
Due to BIR 111 970,000
Cash in
Bank–LCCA
To record
full payment
made for the
land and other
structures
purchased
withholding tax Cash in 2 30,000
Bank–LCCA 11
To record 1
remittance to
the BIR for
taxes withheld
IMPAIRMENT OF ASSETS
Definition
Impairment is a fall in the market value of an asset so that its “recoverable amount” is
now less than its carrying value in the balance sheet.
The carrying value or carrying amount is the amount at which an asset is recognized
in the balance sheet after deducting any accumulated depreciation and accumulated
impairment loss.
If and only if, the recoverable amount of an asset is less than its carrying amount, the
carrying amount of the asset should be reduced to its recoverable amount. That
reduction is an impairment loss (par. 58, IAS 36)
An impairment loss should be recognized as an expense in the income statement

immediately, unless the asset is carried at revalued amount under another IAS (for
example, under the allowed alternative treatment in IAS 16). Any impairment loss of
a revalued asset should be treated as a revaluation decrease under that IAS. (par. 59,
IAS 36)
When the amount estimated for an impairment loss is greater than the carrying
amount of the asset which it relates, an enterprise should recognize a liability if, and
only if, that is required by another IAS.
After the recognition of an impairment loss, the depreciation (amortization) charge for
the asset should be adjusted in future periods to allocate the asset’s revised carrying
amount, less its residual value (if any), on a systematic basis over its remaining useful
life. (par. 62, IAS 36)
In this regard, there are three main accounting issues to consider, namely:
1. Indication of possible impairment – The events and changes in

circumstances that lead to an impairment of assets may be classified as external
and internal sources of information. (IAS 36)
2. Measurement of the recoverable amount – The recoverable amount of an

asset is its net selling price or value in use, whichever is higher.
Net selling Price is the amount obtainable from the sale of an asset in arm’s
length transactions between knowledgeable, willing parties, less costs of disposal.
Examples of costs of disposal:

a. Legal costs
b. Stamp duty and similar transactions taxes
c. Costs of removing the asset
d. Direct incremental costs to bring the asset into condition for sale
However, costs of disposal do not include termination benefits, restructuring
or reorganization expenses and any other costs that have already been
recognized in the account as liabilities.
Value in use is measured as the present value of estimated future cash flows
(inflows minus outflows) generated by the asset, including its estimated net
disposal value, if any, at the end of its expected useful life. The cash flows should
be pretax cash flows and pretax discount rate should be applied in determining the
present value.
a. Recognition of impairment loss
If the recoverable amount of an asset is less than its carrying amount, an

impairment loss has occurred.
The impairment loss should be recognized immediately by reducing the asset’s

carrying amount to its recoverable amount.
The impairment loss is classified as other operating expense and therefore

should not be treated as an extraordinary item.
Illustration:
Machinery P5,000,000
Accumulated Depreciation (5-
year life, 2 years expired) 2,000,000
Carrying value P3,000,000
Assume that due to obsolescence and physical damage, the machinery is found
to be impaired. Computation of the impairment loss shall be as follows:
Fair value of the machinery P2,400,000

Present value of future net cash
flows from the asset 2,200,000
IAS 36 states that the recoverable amount is equal to the net selling price
(fair value) or value in use (net present value of future cash flows),
whichever is higher.
Carrying value P3,000,000

Recoverable amount (fair value) 2,400,000
Impairment loss P 600,000
The impairment of the machinery is recorded as follows:
Account
Loss of Assets 961 600,000
Accumulated Depreciation- 326 600,000
Machinery
To record impairment
loss
Note: After the recognition of an impairment loss, the depreciation charge for the
asset should be adjusted in future periods to allocate the asset’s revised carrying
amount, less its residual value on a systematic basis over its remaining useful
life.
Accordingly, the adjusted book value which is equal to the fair value of
P2,400,000 is allocated over the remaining life of 3 years to get the annual
depreciation of P800,000.
EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES
Foreign Currency Transactions arising when an enterprise either:
1. buys goods or services whose price is denominated in a foreign currency;

2. borrows or lends funds when the amounts payable or receivable are
denominated in foreign currency;
3. becomes a party to an unperformed foreign exchange contract; or
4. otherwise acquires or disposes of assets, or incurs or settles liabilities,
denominated in a foreign currency.
Initial Recognition
A foreign currency transaction should be recorded, on initial recognition in the

reporting currency, by applying to the foreign currency amount the exchange rate
between the reporting currency and the foreign currency at the date of the transaction.
(IAS 21, par. 9)
Recognition of Exchange Differences

1. Exchange differences arising on the settlement of monetary items or on
reporting an enterprise’s monetary items at rates different from those at which
they were initially recorded during the period, or reported in previous financial
statements, should be recognized as income or as expenses in the period in which
they arise, with the exception of exchange differences dealt with in accordance
with paragraphs 17 and 19. (IAS 21, par. 15)
2. Exchange differences arising on a monetary item that, in substance, forms part

of an enterprise’s net investment in a foreign entity should be classified as equity
in the enterprise’s financial statements until the disposal of the net investment, at
which time they should be recognized as income or as expenses in accordance
with paragraph 37. (IAS 21, par. 17)
3. Exchange differences arising on a foreign currency liability accounted for as

hedge of an enterprise’s net investment in a foreign entity should be classified as
equity in the enterprise’s financial statements until the disposal of the net
investment, at which time they should be recognized as income or as expenses in
accordance with paragraph 37. (IAS 21, par. 19)
Allowed Alternative Treatment
Exchange differences may result from a severe devaluation or depreciation of a

currency against which there is no practical means of hedging and that affects
liabilities which cannot be settled and which arise directly on the recent acquisition of
an asset invoiced in a foreign currency. Such exchange differences should be
included in the carrying amount of the related asset, provided that the adjusted
carrying amount does not exceed the lower of the replacement cost and the amount
recoverable from the sale or use of the asset. (IAS 21, par 21)
RETIREMENT BENEFIT
Definition of Terms:
Retirement Benefit Plans are arrangement whereby an enterprise provides benefits

for its employees on or after termination of service (either in the form of an annual
income or as a lump sum) when such benefits, or the employer’s contributions
towards them, can be determined or estimated in advance of retirement from the
provisions of a document or from the enterprise’s practices. (IAS 26, par 8)
Defined Contribution Plans are retirement benefit plans under which amounts to be
paid as retirement benefits are determined by contributions to a fund together with
investment earnings thereon. (IAS 26, par 8)
Defined Benefit Plans are retirement benefit plans under which amounts to be paid as
retirement benefits are determined by reference to a formula usually based on
employees’ earnings and/or years of service. (IAS 26, par 8)
Accounting for Defined Contribution Plan

Accounting for a defined contribution plan is straightforward because the obligation

of the enterprise is determined by the amount contributed for each period. There are
no actuarial assumptions to measure the contribution and there is no possibility of any
actuarial gain or loss.
IAS 19 requires the following accounting procedures:
1. The contribution should be recognized as expense in the period it is payable.

The enterprise should disclose the amount recognized as expense for a defined
contribution plan.
2. Any unpaid contribution at the end of the period should be recognized as
accrued expense.
3. Any excess contribution should be recognized as prepaid expense but only to
the extent that the repayment will lead to a reduction in future payments or cash
fund.
Accounting for Defined Benefit Plan
Accounting for a defined benefit plan is complex because actuarial assumptions are
required to measure the obligation and the expense and there is a possibility of
actuarial gain and losses.
If actuarial assumption changes, the amount of required contributions will change and
there may be actuarial gains and losses. Consequently, under a defined benefit plan,
the expense recognized is not necessarily the amount of contribution for the period.
IAS 19, par 61, enumerates the following components of benefit expense that will be
recognized for a period under a defined benefit plan:
1. Current service cost

2. Interest cost
3. Expected return on plan assets
4. Actuarial gains and losses, to the extent that they are recognized
5. Past service cost, to the extent that it is recognized
MISCELLANEOUS TRANSACTIONS USING CORPORATE FUNDS
Transactions Journal Entries Code Dr Cr

1 Cash Transfer to Another Agency to Implement Corporate Project
(Inter-Agency Transferred Funds.)
The Corporation, as the Source Agency (SA), transfers cash to
another agency as the implementing agency (IA).
1.1 MOA with DPWH Posted in the
for the construction Budget and
of the office Utilization
buildings Worksheet


1.2 Cash transfer to Due from NGAs 13 50,0
DPWH Cash in 6 00 50,000
Bank–LCCA 11
To provide 1
the transfer of
cash to DPWH
for the
construction of
the office
building
1.3 Receipt of report Office Buildings 21 50,0

from DPWH on the Due from 1 00 50,000
completion of the NGAs 13
project and eventual To record the 6
turnover of the office liquidation of
building DPWH and the
turnover of the
completed
project
Note: Please refer to session on Income …if Agency is the recipient, the
SA.
2 Guaranty Deposits
2.1 Acceptance of the Gasoline, Oil and
10 drums of gasoline Lubricant 161 20,0
with deposits for the Inventory 186 00
drums Guaranty 401 500 20,500
Deposits
Accounts
Payable
To record
the delivery of
10 drums of
gasoline with
deposit on
container
2.2 Payment of the Accounts 401 20,5
purchase Payable 412 00 600
Due to BIR 111 19,900
Cash in
Bank–LCCA
To record
payment for 10
drums of
gasoline
2.3 Return of the drums Cash-Collecting 102 500
and refund of the Officers 186 500
deposits Guaranty
Deposits
To record the
return of the

container and
refund of deposit
2.4 Remittance of taxes Due to BIR 412 600
withheld to the BIR Cash in 111 600
Bank-LCCA
To record
remittance of
taxes withheld
3 Stale Check (check with payor)
Check Issued in Prior Cash in Bank- 111 4,000
Year LCCA 401
3.1 Cancellation of stale Accounts or
check issued Payable 684 4,000
previous year or
Prior Years’
Adjustments
To record
cancellation of
stale check
3.2 Replacement of Accounts 401 4,000
stale check Payable
or 684
Prior Years’ 111 4,000
Adjustments
Cash in
Bank–LCCA
To record the
replacement of
stale check
Check issued in current Cash in Bank – 111 4,000
year LCCA 401 4,000
3.3 Surrender of the Accounts
stale check Payable
To record the
receipt of stale
check with
request for
replacement
3.4 Issuance of new Accounts 401 4,000
check Payable 111 4,000
Cash in
Bank–LCCA
To record
replacement of
stale check
4 Cash Shortage
4.1 Discovery of the Due from Officers 123 5,000
shortage of the and Employees 103 5,000
disbursing officer Cash-
Disbursing
Officers


To record the
shortage of the
disbursing
officer
4.2 Restitution of the Cash-Collecting 102 5,000
shortage Officers 123 5,000
Due from
Officers and
Employees
To record the
restitution of the
shortage
5 Disallowance in Audit – Under existing regulations, disallowance is
recorded only when it becomes final and executory.
5.1 Disallowance of prior Receivables–
year’s expenses Disallowances/ 146 600
Charges 684 600
Prior Years’
Adjustment
To record
audit
disallowance
which became
final and
executory
5.2 Transaction Receivables-
disallowed is for Disallowances/ 146 800
current year Charges 751 800
traveling expenses Traveling
Expenses–Local
To record the
audit
disallowance of
current year
expenses
6 Transfer of Property, Plant and Equipment to another Corporation
6.1 Transfer of car to Acc. Dep’n– 341 350,000
another corporation Motor Vehicles 878 150,000
Cost Donation 241 500,00
P500,000 Motor 0
Depreciation Vehicles
350,000 To record the
Net Book Value transfer of motor
P150,000 vehicle to
another
corporation at no
cost
DISBURSEMENT PROCESS

The following is the general disbursement process to be followed under the NGAS.
Detailed procedures will depend on the corporation’s organizational structure.
PERSON / UNIT
PROCESS
RESPONSIBLE
1. Gather supporting documents Creditor/Concerned
[prepare Disbursement Voucher office/employee
(DV) when required] and submit
to Accounting Unit.
2. Check completeness of Accounting Unit
documents, assign number to the
DV and forward to concerned
office.
3. Certify correctness of DV and Concerned Office
then, return voucher with all
supporting documents (SDs) to
Accounting Division.
4. Verify claim, certify funds Accounting Unit
availability and forward to
Approving Officer.
5. Approve transaction and Head of Agency or

forward DV to Cashier. authorized
Approving Officer
6. Prepare and sign check, and Cashier
forward check with DV to
countersigning Officer.
7. Countersign check and return to Approving Officer
Cashier.
8. Release check to claimant, Cashier
update Check Disbursements
Records.
9. Certify the Check Cashier

Disbursements Records and
forward it with the DVs and the
SDs to Accounting Division for
recording of transactions in the
books.
10. Upon receipt of the Check Accounting Division
Disbursements Records,
recapitulate data and prepare the
Journal Entry Voucher (JEV)
11. Sign “Prepared by” portion and Accounting Division
the approval portion of the JEV
PERSON / UNIT
PROCESS
RESPONSIBLE
and record JEV in the Check
Disbursements Journal (CkDJ)
and file.
INVENTORY PROCESS
The following is the general process to be followed in the control of inventory/PPE:
PERSON / UNIT
PROCESS
RESPONSIBLE
1. Prepare Purchase Request (PR)
Property Unit
and Purchase Order (PO)
2. Submit approved PO to Budget
Property Unit
Unit for funding
3. Record in the Budget Utilization
Budget Unit
Worksheet for the provision of fund
4. Receive purchased items, enter in
Stock Cards/Property Cards.
Forward delivery Property/Supply Unit
receipt/invoice/appropriate
documents to Accounting Unit. Inspectorate
Cause inspection of items. Prepare Committee
Inspection and Acceptance Report
(IAR)
3. Prepare a JEV to record receipt of Accounting Unit
the inventory/equipment in the
books of accounts and in Stock
Ledger Card (SLC)/Property, Plant
and Equipment Ledger Card
(PPELC)
4. Prepare Requisition and Issue Slip
(RIS) and forward to Property Unit Requisitioning Unit
for verification existence of item
requested. the withdrawal of the
stock requisitioned
5. Release supplies and property. Property/Supply Unit
Prepare Property Acknowledgement
Receipt (PAR) for signature of the
Accountable Officer (recipient of the
item). Record issuance in the
respective Stock Cards/Property
Cards.
6. Prepare and submit Report of Supply Unit
Supplies and Materials Issued
PERSON / UNIT
PROCESS
RESPONSIBLE
(RSMI) to Accounting Unit, attached
copies of RIS.
7. Upon receipt of the RSMI, Accounting Unit
recapitulate, assign cost and
prepare JEV for issuance and post
the same in the SLC/PPELC.
FORMS, RECORDS, REPORTS AND BOOKS OF ACCOUNTS
The forms, records, reports and books of accounts used in accounting for
expenditures, disbursements and other related transactions which are shown in
Annexes A-F are as follows:
A. Forms
1. Disbursement Voucher
2. Petty Cash Voucher
3. Journal Entry Voucher
4. Purchase Request
5. Purchase Order
6. Requisition and Issue Slip
7. Property Acknowledgement Receipt
B. Records (to be used by agencies with complete set of books)

1. Cash Disbursements Records
2. Check Disbursements Records
3. Petty Cash Fund Records
C. Registers (to be used by field offices without complete set of books)

1. Cash Disbursements Register
2. Check Disbursements Register
3. Petty Cash Fund Register
D. Reports
1. Report of Checks Issued
2. Inspection and Acceptance Report
3. Report of Supplies and Materials Issued
4. Liquidation Report
E. Books of Accounts
1. General Journal
2. Cash Disbursements Journal
3. Check Disbursements Journal
4. Property, Plant and Equipment Ledger Card
5. Supplies Ledger Card
F. Registries
1. Registry of Public Infrastructures
2. Registry of Reforestation Projects
Summary
In this session, we learned the accounting policies, rules and regulations on the
general policies on expenditures, disbursements and related transactions; the different
modes and types of disbursements made by the corporate agency; the journal entries
for each type of disbursement; the different related transactions and the international
accounting standards being complied with; the various forms, records and books of
accounts used and maintained by the corporation; and the general processes involving
disbursements and control for supplies and property.


Session 4 Acctng For Exp Disb Rel Trans

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NGAS – Corporate 42

In a regular government agency most of the transactions involve

At the end of the session, the participants shall be able to tell:

BASIC PRINCIPLES IN GOVERNMENT EXPENDITURES

1. No money shall be paid out of any public treasury/depository except in pursuance

Session 4.0 PROFESSIONAL DEVELOPMENT CENTER

Basic Requirements Applicable to All Types of Disbursements

1. Existence of a lawful and sufficient appropriation certified as available by the

Modes of Disbursements of Government Funds

To demonstrate the recording of the different types of disbursements, let us consider

Transactions Accounting Entries Code Dr Cr

Transactions Accounting Entries Code Dr Cr

Transactions Accounting Entries Code Dr Cr

2.2 Submission by the Clothing/Uniform 715 6,000

Session 4.0 PROFESSIONAL DEVELOPMENT CENTER

Transactions Accounting Entries Code Dr Cr

5.2 Payment of terminal Terminal Leave 742 15,000

MAINTENANCE AND OTHER OPERATING EXPENSES

Asset Method/Perpetual Inventory Method

Maintenance of Supplies Ledger Cards

When Perpetual Inventory Method is followed, detailed perpetual inventory records,

Please take note that the account “Inventories – Semi-Expendable Supplies,

Accounting Entries to Record Disbursements Using the Corporate Budget for

1.2 Liquidation Report Traveling 751 8,000

Session 4.0 PROFESSIONAL DEVELOPMENT CENTER

3 Supplies and Materials

Session 4.0 PROFESSIONAL DEVELOPMENT CENTER

Session 4.0 PROFESSIONAL DEVELOPMENT CENTER

4 Petty Cash Fund

Session 4.0 PROFESSIONAL DEVELOPMENT CENTER

4.5 Return of Cash-Collecting 102 6,000

Session 4.0 PROFESSIONAL DEVELOPMENT CENTER

6.3 Payment of bills Accounts 401 3,500

Session 4.0 PROFESSIONAL DEVELOPMENT CENTER

7.1 Subscribed to three Posted in the

8 Gasoline, Oil and Lubricants

Session 4.0 PROFESSIONAL DEVELOPMENT CENTER

10.4 Remittance of Due to BIR 412 2,550

Session 4.0 PROFESSIONAL DEVELOPMENT CENTER

11 Taxes, Duties and Licenses

11.1 Charge registration Posted in the

PROPERTY, PLANT AND EQUIPMENT

Definition of Property, Plant and Equipment (PPE)

In determining whether an item satisfies the first criterion for recognition, an

Initial Measurement of PPE

An item of PPE which qualifies for recognition as an asset should initially be

Session 4.0 PROFESSIONAL DEVELOPMENT CENTER

Examples of directly attributable costs are:

1. cost of site preparation;

1. administrative and other general overhead costs;

Acquisition on cash basis

For instance, a machinery is acquired at a cash price of P300,000. In addition to

Fair Value Fraction Allocated cost

The acquisition of the land and building is recorded as follows:

3. Accounts Payable 401 98,000

Acquisition on installment basis

Thus, if an asset is offered at a cash price and at an installment price and is

For instance, assume that a machinery is purchased at an installment price of

The journal entries are:

2. Other Long-Term Liabilities 450 100,000

3. Interest Expenses 975 20,000

For instance, assume that a machinery is acquired at an installment price of