Acc 111 Merged Complete

ACC 111 | Accounting for Government and Non-Profit Organizations
Student Activity Sheets Module #1
Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________
Lesson Title: Orientation Flexible Learning Materials:

Lesson Objectives: Student Activity Sheets
At the end of this module, the students should be able to:
1. Introduce Flexible Learning Set-up References:
2. Set house rules Millan, Z. V. (2018). Government
Accounting & Accounting for Non-
Profit Organizations.
Productivity Tip:
“The best way to predict you future is to create it.” - Abraham Lincoln
A. LESSON PREVIEW/REVIEW
1) Introduction (2 mins)
You are now officially enrolled in one of the major subjects of Bachelor of Science in
Accountancy/Management Accounting. I hope you will cooperate with what the course requires you. This
will make your learning experience memorable.
Please read the learning targets before you proceed to the succeeding activities. The learning
targets are your goals. Remember, you need to achieve your learning targets at the end of the
lesson.
2) Activity 1: What I Know Chart, part 1 (3 mins)

What I Know Questions: What I Learned (Activity 4)
What is Flexible Learning?
B. MAIN LESSON
1) Activity 2: Content Notes (13 mins)
Below are the notes about Flexible Learning. You may underline or highlight words or phrases that you think is
the main focus of the lesson.
When you enrolled this semester, what are your expectations? Will it be online or modular?
This document is the property of PHINMA EDUCATION


Our learning framework remains to be Active Learning. In response to the needs of this new normal, we will be
adopting a Flexible Learning Approach. This means students will not go to school to attend classes face-to-face.
But it is a 100% home-based learning to be facilitated by an assigned instructor
What learning materials are needed in flexible learning set-up?

The primary instructional material for the flexible learning set-up is the Flexible Learning Module.
The learning experiences in the modules are designed for full self-study in consideration for the students to stay
at home.
If the modules are designed for full self-study, what would be the teacher’s role now?
Teacher’s Role in the 0-14 Set-up.
1. Check and grade collected output.
2. Monitor work through phone calls and chats, provide guidance, answer questions,
and check understanding.
2) Activity 3: Skill-building Activities (18 mins + 2 mins checking)

1. Read the course outline for ACC 111: Accounting for Government and Non-Profit Organizations.
2. Fill out student directory.
3. Take note of house rules

It’s time to answer the questions in the “What I Know Chart” in Activity 2. Write your answers in
the “What I Learned” column.
4) Activity 5: Tips for an Effective Home Study

1. Get a good night’s sleep. Students of all ages should get at least eight hours of sleep every school night. It’s
the best way to ensure that the brain is refreshed and ready to process all of the information learned during the
day. It may be tempting to stay up late to cram, but it’s more beneficial to get enough rest.
2. Eat properly. Don’t forget to eat! Your body and your brain needs fuel to help stay in top form. Plus, it’s difficult
to focus when you stomach is growling. Have healthy snacks but make sure they are prepared in advance so you
don’t spend too much time away from your work.
3. Get dress. By getting up and getting ready for the day, helps set the tone for making it a productive day. Not
getting dressed makes people more likely to decide to just watch videos and sleep after lunch.
4. Have a designated study area. Whether it’s the kitchen table or the desk in your bedroom, create an area to
study that is a designated study zone. Have on hand all the materials you need. Make your learning environment
comfortable, not cozy. You’re there to study, not to snooze! Try to reserve your bed for sleeping and avoid
studying in it (it’s easy to take a nap!).


5. Create a timetable. This helps you organize your time, schedule your breaks, and is useful when you have
multiple subjects to study. Write your schedule so you can remember it and refer to it often. Set reasonable limits
for how much time you spend studying each day, and break you session up into manageable chunks.
6. Take notes. This may include underlining or highlighting parts of lesson that you find important or may be
seen as its focus.
7. Try active studying. It is as simple as asking questions before, during, and after study time. Not only does this
help to give your study session direction, but it also helps keep you on track and reflect on how to improve your
next study session.
8. Use a dictionary. If you pass by unfamiliar words, search for its definition. This will help you understand each
lesson everyday plus it will help you widen your vocabulary.
9. Take breaks. Go for a walk, ride your bike, or exercise. A hobby too can refresh you. “But get your work done
first,” says the book School Power. “Free time feels freer when you don’t have unfinished business.”
C. LESSON WRAP-UP
1) Activity 6: Thinking about Learning (5 mins)
Work tracker. Congratulations! You have finished the module for today! Shade the number of the module that
you finished.
First Period Second Period Third Period
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
How do you feel today?

I feel (unsatisfactory/satisfactory/excellent) because ______________________________________________________.
What are your challenges in learning the concepts in this module? If you do not have challenges, what is your
best learning for today?
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
What are the questions/thoughts you want to share to your teacher today?
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
FAQs
1. Are we required to watch online videos at home?
No. Since we cannot assume that all students will have access to online materials, videos, if there is
any, will be presented during face-to-face session.
TEACHER-LED ACTIVITIES


Specific activities for this day:

1. Distribute course outline.
2. Discuss overview of subject, course requirements, and grading.
3. Let student’s fill out student directory.
4. Create group chat.
5. Set house rules.
These are standard instructions for teachers.

A. If this session happens to be a face-to-face, in-classroom learning session:
1) Collect completed work in the SAS.
2) Allocate your contact time with students to individual or small group mentoring, monitoring,
and student consultations.
3) You may administer summative assessments (quizzes, demonstrations, graded recitation,
presentations, performance tasks) during face-to-face sessions.
4) You may also explore supplementary activities that foster collaboration, provided that social
distancing is observed.
5) You may provide supplementary content via videos, etc.
It is important to remember that students who cannot make it to face-to-face, in-classroom
sessions for health and safety reasons, should not be given lower grades for missing in-class
activities and should be given alternative summative tests.
B. If this session happens to be an at-home learning session for the students:
1) Check and grade collected SAS and other input from students.
2) Schedule phone calls/virtual calls/virtual chats to individual students or small groups of
students to monitor work, provide guidance, answer questions, and check understanding.


Lesson Title: Overview of Government Accounting Materials:

Lesson Objectives: Textbook
At the end of this module, I should be able to:
1. Differentiate government accounting from the accounting for References:
business entities and those charged with accounting Millan, Z. V. (2018). Government
responsibility. Accounting & Accounting for Non-
2. State the basic accounting principles and recognition criteria Profit Organizations.
of government accounting.
Productivity Tip:
The beginning is the hardest part to overcome. To decide that you will live the life of your dreams can be a
scary undertaking but worth it nonetheless. Begin now, beyond your fear, and create your new life.
Welcome to Government Accounting! A government is the system or group of people governing an
organized community, often a state. Today, we are going to learn how the government accounts for its
transactions to provide infrastructures and services to its citizens.

1. Give one difference between
accounting for business entities and
government accounting.
2. Give two Basic Accounting and

Budget Reporting Principles
government entities must comply.
3. What is the objective of the

Government Accounting Manual for


National Government Agencies (GAM

for NGAs)?
B. MAIN LESSON
Government Accounting encompasses the processes of analyzing, recording, classifying, summarizing, and
communicating all transactions involving the receipt and disposition of government funds and property, and
interpreting the results thereof. (State Audit Code of the Philippines, PD. NO. 1445, Sec. 109)
Objectives of Government Accounting:

a) To produce information concerning past operations and present conditions;
b) To provide a basis for guidance for future operations;
c) To provide for control of the acts of public bodies and officers in the receipt, disposition and utilization
of funds and property.
d)
e) To report on the financial position and the results of operations of government agencies for the
information of all persons concerned.
Like the accounting for business entities, government accounting is also a process of producing information that
is useful in making economic decisions. Government accounting, however, places greater emphasis on the
following:
a) Sources and utilization of government funds
b) Responsibility, accountability and liability of entities entrusted with government funds and properties
Sources of funds - receipts from taxes and other fees, borrowings, and grants from other governments and
international bodies
Utilization of funds - includes expenditures on programs, projects, unanticipated losses from calamities and the
like
Responsibility, Accountability and Liability over Government Funds and Property - Government resources
must be utilized efficiently and effectively in accordance with the law. Government officials are responsible in
implementing this policy, are accountable for the government in their custody, and are liable for any loss.
It must be emphasized, that government officials are only mere agents of the government funds and does not
own them. They are given the responsibility to utilize the funds to promote growth in the country/state.
Government Accounting helps in identifying whether or not government funds are utilized effectively and
efficiently.


Accounting Responsibility
The following offices are charged with government accounting responsibility:
a) Commission on Audit (COA) - Has the exclusive authority to promulgate accounting and auditing rules
and regulations, keeps the general accounts of the government, supporting vouchers, and other
documents and submits financial to the President and Congress
b) Department of Budget and Management (DBM) – responsible for the formulation and implementation
of the national budget with the goal of attaining the nation's socio-economic objectives
c) Bureau of Treasury (BTr) - functions under the Department of Finance and is the cash custodian of the
government authorized to receive and keep national funds and manage and control the disbursements
thereof and Maintain accounts of financial transactions of all national government offices, agencies and
instrumentalities
d) Government agencies - refers to any department, bureau or office of the national government, or any
of its branches and instrumentalities, or any political subdivision, as well as any government owned or
controlled corporation (GOCC), including its subsidiaries, or other self-governing board or commission of
the government
Financial Reporting System of the National Government
Bureau of Treasury
Each entity reconciles
acctng books with cash Each entity is subject
records of BTr to audit, reconciles
Government Agencies
budget registries with
budget records of COA
- Each maintains Commission on Audit
and submits financial
accounting books and records for
Consolidates financial
budget registries consolidation
Each entity reconciles reports and submits it
budget registries with to the President and
budget records of DBM Congress
Department of Budget
and Management
Government Accounting Manual for National Government Agencies (GAM for NGAs)
The GAM for NGAs was promulgated primarily to harmonize the government accounting standards with
international accounting standards, particularly the International Public Sector Accounting Standards


(IPSAS). The IPSASs are based on the International Financial Reporting Standards (IFRS).
The GAM for NGAs provides the basic concepts to be used in:
a) Preparing general purpose financial statements in accordance with the Philippine Public Sector
Accounting Standards (PPSAS) and other financial reports as may be required by laws, rules, and
regulations
b) Reporting of budget, revenue, and expenditure in accordance with laws, rules and regulations.
The objective of GAM for NGAs is update the following:

a) Standards. policies, guidelines, and procedures in accounting for government funds and property
b) Coding Structure and accounts
c) Accounting registries, records, forms, reports, and financial statements.
Basic Accounting and Budget Reporting Principles

The financial records and reports of government entities comply with the following:
1. Philippine Public Sector Accounting Standards (PPSAS) and relevant laws, rules and regulations
2. Accrual basis of accounting
3. Budget basis for presentation of budget information in the financial statements
4. Revised Chart of Accounts prescribed by COA
5. Double entry bookkeeping
6. Financial statements based on accounting and budgetary records
7. Fund cluster accounting - The books of accounts are maintained by fund cluster as follows:
Code Fund Cluster

01 Regular Agency Fund
02 Foreign Assisted Projects Fund
03 Special Account – Locally Funded/Domestic Grants Fund
04 Special Account – Foreign Assisted/Foreign Grants Fund
05 Internally Generated Funds
06 Business Related Funds
07 Trust Receipts
Qualitative Characteristics of Financial Reporting

a) Understandability d) Timeliness
b) Relevance e) Reliability
c) Materiality f) Faithful Representation


g) Substance over form j) Completeness

h) Neutrality k) Comparability
i) Prudence
Components of General-Purpose Financial Statements

a) Statement of Financial Position
b) Statement of Financial Performance
c) Statement of Changes in Net Assets/Equity
d) Statement of Cash Flows
e) Statement of Comparison of Budget and Actual Amounts
f) Notes to Financial Statements
Elements of the Financial Statements

• Assets
• Liabilities
• Equity
• Revenue
Revenue funds – comprise all funds derived from the income of any agency of the government
and available for appropriation or expenditure in accordance with law.
• Expenses
2) Activity 3: Skill-building Activities (18 mins + 2 mins checking)

True or False:
______________ 1. Compared to the accounting for business entities, government accounting places greater
emphasis on the sources and utilization of government funds and the management's stewardship over
government resources.
______________ 2. Taxes are the main source of the government funds.
______________ 3. Other sources of funds of the government include fees, borrowings. and grants from other
governments and international bodies.
______________ 4. Currently, the financial reporting of government entities is based on NGAS.
______________ 5. The principles used in the financial reporting of government entities are very unique that only a
very few of principles are similar to those that are applied to business entities.
______________ 6. The principles in the GAM for NGAs are similar to the principles in the PFRSs.
______________ 7. The GAM for NGAs is promulgated by the Philippine Congress under the authority conferred to
it under the Philippine Constitution.
______________ 8. A unique financial reporting requirement of government entities is the use of fund cluster
accounting. Under fund cluster accounting, separate books and reports are prepared for each type of fund held
by a government entity.


______________ 9. The GAM for NGAs is promulgated primarily to harmonize government accounting standards
with the U.S. GAAP.
______________ 10. An item is recognized as an asset if it both the "probable future economic benefits” and "reliable
measurement" criteria, regardless of whether the item is a resource controlled arising from past events.

the “What I Learned” column. Let’s see your improvement!
4) Activity 5: Check for Understanding (5 mins)

Circle the letter of the best answer.
1. It is the process of analyzing, recording, classifying, summarizing and communicating all transactions
involving the receipt and disposition of government funds and property and interpreting the results thereof.
a. Government Auditing c. Government Accounting
b. Government Budgeting d. National Government
2. Which is not charged with the government accounting responsibility?
a. Commission on Audit c. National Government Agencies
b. Department of Budget and Management d. Legislative Department
3. What is the role of the Bureau of Treasury in relation to government accounting responsibility?
a. To receive and keep national funds and manage or control disbursements thereof.
b. To design, prepare and approve the accounting systems of government agencies
c. To keep the general accounts of the national government.
d. To prepare the annual financial report of the national government, its instrumentalities and
government-owned or controlled corporations
4. What is the legal basis of the Commission on Audit in prescribing the GAM for NGAs?
a. PD 1445 c. COA Circular No. 2002-003
b. Constitution of the Republic of the Philippines d. PD 1445 and the Constitution of the Republic of
the Philippines
5. The Philippine Public Sector Accounting Standards (PPSAS) shall be applied to the following except:
a. National Government Agencies
b. Government Business Enterprises
c. Local Government Units
d. Government Owned and/or Controlled Corporations
6. Which of the following is a unique requirement of government accounting that is not required in the
accounting for business entities?
a. use of double-entry recording system
b. use of single-entry recording system
c. use of accrual basis of accounting


d. The presentation of budget information in the financial statements

7. Which of the following is tasked in keeping the general accounts of the government, supporting vouchers,
and other documents?
a. Commission on Audit c. National Government Agencies
b. Department of Budget and Management d. Legislative Department
8. The Bureau of Treasury (BTR) is responsible for
a. promulgating accounting and auditing rules and regulations.
b. the formulation and implementation of the national budget with the goal of attaining the nation's
socio-economic objectives
c. receiving and keeping national funds and managing and controlling the disbursements thereof
d. directly implementing the projects of the government
9. Government resources must be utilized efficiently and effectively in accordance with the law. According to
P.D. No. 1445, who is directly responsible in implementing this policy?
a. All employees who are entrusted with the possession of government resources
b. The head of the government agency
c. Commission on Audit
d. All elected officials
10. The transfer of government funds from one officer to another requires the prior authorization of the
a. Commission on Audit
b. Head of the Agency
c. The President of the Republic of the Philippines
d. Bureau of Treasury
C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

I feel (unsatisfactory/satisfactory/excellent) because ______________________________________________________.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________


______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
FAQs
KEY TO CORRECTIONS
Activity 1and 4.
1. Government accounting, places greater emphasis on the following:
• Sources and utilization of government funds
• Responsibility, accountability and liability of entities entrusted with government funds and properties
2.
1. Philippine Public Sector Accounting Standards (PPSAS) and relevant laws, rules and regulations
2. Accrual basis of accounting
3. Budget basis for presentation of budget information in the financial statements
4. Revised Chart of Accounts prescribed by COA
5. Double entry bookkeeping
6. Financial statements based on accounting and budgetary records
7. Fund cluster accounting - The books of accounts are maintained by fund cluster as follows:
3. The objective of GAM for NGAs is update the following:
a) Standards. policies, guidelines, and procedures in accounting for government funds and property
b) Coding Structure and accounts
c) Accounting registries, records, forms, reports, and financial statements.
Activity 3.
1. True (COA).
2. True 8. True
3. True 9. False. GAM for NGas is in harmony with the
4. False. NGAS was replaced by GAM for NGAs on International Public Sector Accounting Standards
January 2016. (IPSAS).
5. False. The only unique to government entity FS is 10. False. Key features of assets are (1) The benefit
the Statement of Comparison of Budget and Actual must be controlled by the entity, (2) The benefits must
Amounts. have arisen prom past events, (3) Future economic
6. True benefits or service potential must be expected to flow
7. False. Promulgated by the Commission on Audit to the entity.
Activity 5.


1. C 6. D
2. D 7. A
3. A 8. C
4. B 9. B
5. B 10. A


Lesson Title: The Budget Process Materials:

1. Enumerate the steps in the budget process. References:
2. Describe briefly the principles of responsibility accounting. Millan, Z. V. (2018). Government
Productivity Tip: After finishing this module, list down important concepts and terms that you remember. Do
this for about 5 minutes. Compare your list to the module materials after and see what you got right or if you
missed something
Welcome back! From our previous module, we were able to discuss on the basic premises of government
accounting. One of the notable points from it is the existence of the Statement of Comparison of Budget
and Actual Amounts in the complete set of Financial Statements of the government. Today, we are going
deep into the budget process of the government, its importance, and the principles of responsibility
accounting.

1. What is a National Budget?
2. What are the four phases of the

Budget Cycle?


3. Expound the concept of

Responsibility Accounting.
B. MAIN LESSON
National Budget (or government budget) - the government's estimate of the sources and uses of government
funds within a fiscal year. This forms the basis for expenditures and is the government's key instrument for
promoting its socio-economic objectives.
The Budget Cycle

The four phases of the budget cycle:
I. Budget Preparation
II. Budget Legislation
III. Budget Execution
IV. Budget Accountability
A. Budget Preparation
The Philippine Government uses “bottom-up” approach in budget preparation. Under “bottom-up” budgeting,
several parties participate in the budget preparation, starting from the lowest to the highest levels of the
government. Government agencies are also tasked to increase the participation of citizen-stakeholders in the
budget preparation.
The Philippine Government also started to shift from incremental budgeting to zero-based budgeting in 2011.
• Incremental Budgeting – current year budget is formulated based on previous year’s budget, adjusted for
variances experienced in the past
• Zero-based Budgeting – current year budget is formulated without regard to the previous year’s budget.
Government agencies are required to justify their current year’s proposed programs and expenditures,
irrespective of whether these are new or carried over from the previous year.
Steps in Budget Preparation:

1. Budget Call – this is the start of budget preparation when budget call is issued by Department of Budget
and Management (DBM) to all government agencies containing the next fiscal year’s targets, agency
budget ceiling, and other guidelines in the completion and submission of agency budget proposals.


2. Budget Hearings – comes after the submission of agencies of their budget proposals where they will
defend their budget proposal before the DBM. The DBM deliberates on the budget proposals, makes
recommendations, and consolidates the deliberated proposals into the National Expenditure Program
(NEP) and Budget of Expenditures and Sources of Financing (BESP). The DBM then submits the proposed
budget to the President.
3. Presentation to the Office of the President - The President and Cabinet members review the proposed
budget. Upon the president’s approval, the DBM finalizes the budget documents to be submitted to the
Congress. At this point, the proposed budget is referred to as the "President's Budget."
B. Budget Legislation
Government funds shall only be spent in pursuance of an appropriation made by law. Therefore, due process
must be undertaken to legalize the proposed budget.
Steps in Budget Legislation:

1. House Deliberations — Upon receipt of the President's Budget, the House of Representatives conducts
hearings to scrutinize the various agencies' respective proposed programs and expenditures. Thereafter,
the House of Representatives prepares the General Appropriations Bill (GAB).
2. Senate Deliberations — conducts its own deliberations on the GAB. These normally start after the Senate
receives the GAB from the House of Representatives. However, for expediency, hearings in the Senate
start even as Representatives deliberations are ongoing.
3. Bicameral Deliberations — After deliberations in both houses are finished, a committee called the
Bicameral Conference Committee is formed to harmonize any conflicts between the Representatives and
Senate versions of the GAB.
The harmonized GAB ('Bicam' version) is submitted back to both Houses for ratification. After ratification,
the final GAB is submitted to the President for enactment.
4. President's enactment - The President enacts the budget, which is now known as the General
Appropriations Act (GAA). Before enactment though, the President may exercise his veto power as
conferred to him under the Philippine Constitution.
The Approved Budget

Approved Budget — is the expenditure authority derived from appropriation laws, government ordinances, and
other decisions related to the anticipated revenue or receipts for the budgetary period.
Appropriation — is the authorization made by a legislative body to allocate funds for purposes specified by the
legislative or similar authority.
The approved budget consists of the following:


• New General Appropriations (UACS Code: 01) — are annual authorizations for incurring obligations during
a specified budget year, as listed in the GAA.
• Continuing Appropriations (UACS Code: 02) — are the authorizations to support obligations for a specific
purpose or project, such as multi-year construction projects which require the incurrence of obligations
even beyond the budget year.
• Supplemental Appropriations (UACS Code: 03) — are additional appropriations authorized by law to
augment the original appropriations which proved to be insufficient for their intended purpose due to
economic, political or social conditions supported by a Certification Of Availability of Funds from the BTr.
• Automatic Appropriations (UACS Code: 04) — are the authorizations programmed annually or for some
other period prescribed by law which do not require periodic action by Congress.
• Unprogrammed Funds (UACS Code: 05) — are standby appropriations authorized by Congress in the
annual GAA which may be availed only when any of the following instances occur:
o revenue collections exceed the original revenue targets in the Budget of Expenditures and Sources
of Financing (BESF) submitted by the President to the Congress.
o new revenues are collected or realized from sources not originally considered in the BESF.
o newly approved loans for foreign-assisted projects are secured or when conditions are triggered
for other sources of funds such as perfected loan agreements for foreign assisted projects.
• Retained Income/Funds (UACS Code: 06) — collections which are authorized by law to be used directly by
agencies concerned for their operation or specific purposes.
• Revolving Funds (UACS Code: 07) — receipts derived from business-type activities of
departments/agencies which are authorized by law to be constituted as such and deposited in an
authorized government depository bank. These funds shall be self-liquidating and all obligations and
expenditures incurred by virtue of said business-type activity shall be charged against said fund.
• Trust Receipts (UACS Code: 08) — receipts by any government agency acting as trustee, agent or
administrator for the fulfilment of obligations or conditions.
C. Budget Execution
This is the phase where government funds are spent.
Steps in Budget Execution:

1. Release guidelines and Budget Execution Documents (BEDs) — The DBM issues guidelines on the release
and utilization of funds while the various agencies submit their Budget Execution Documents (BEDs). A
BEDs summarizes an agency's fiscal year plans and performance targets.
Major Recipients of the budget:

a) National Government Agencies (NGA)
b) Local Government Units (LGUs)
c) Government Owned and Controlled Corporations (GOCCs)


2. Allotment — DBM formulates the Allotment Release Program (ARP) to set the limit for allotment releases
during the upcoming year. This is used as a control device to ensure that releases conform to the national
budget. Alongside, is a Cash Release Program (CRP). which sets the disbursement limits for the year, for
each quarter and for each month.
3. Incurrence of Obligations — government agencies incur obligations which will be paid by the government.
Examples of these obligations are entering into contracts, hiring of personnel, purchase of supplies, etc.
4. Disbursement Authority — the DBM issues disbursement authority to the government agencies. This is
the point where government agencies obtain access to the government funds.
D. Budget Accountability
This phase occurs concurrently with the Budget Execution phase. As the budget is being executed, it is regularly
monitored to determine the conformance of actual results with planned targets.
Steps in Budget Accountability

1. Budget Accountability Reports — government agencies are required to submit the following accountability
reports:
a. Monthly Report of Disbursements
b. Quarterly Physical Report of Operation
c. Statement of Appropriations, Allotments, Obligations, Disbursements and Balances
d. Summary of Appropriations, Allotments, Obligations, Disbursements and Balances by Object of
Expenditures
e. List of Allotments and Sub-Allotments
f. Statement of Approved Budget, Utilizations, Disbursements and Balances
g. Summary of Approved Budget, Utilizations, Disbursements and Balances by Object of
Expenditures
h. Quarterly Report of Revenue and Other Receipts
i. Aging of Due and Demandable Obligations
2. Performance Reviews – The DBM and COA perform periodic reviews of the agencies’ performance and
budget accountability and report to the President
3. Audit – COA audits the agencies
Responsibility Accounting
Responsibility accounting is a system of providing cost and revenue information over which a manager has direct
control of. This enables the evaluation of a manager's performance based only on matters that are directly under
his control. Therefore, budget deviations can be readily attributed to the managers accountable therefor.


Responsibility accounting requires the identification of responsibility centers and the distinction between
controllable and non-controllable costs.
• Responsibility center — is a part, segment, unit or function of a government agency, headed by a
manager, who is accountable for a specified set of activities.
• Controllable costs — a cost is considered controllable at a given level of managerial responsibility if the
manager has the power to incur it within a given period of time.
• Non-controllable costs — are costs incurred indirectly and allocated to a responsibility level.
Responsibility center code structure

00 000 0000000 000
Additional code Major Office /Department
Lower level Operating Unit
Agency
Organizational Department
Under responsibility accounting, a manager’s performance is evaluated only in terms of the costs that he
controls.
2) Activity 3: Skill-building Activities (with answer key) (18 mins + 2 mins checking)
True or False:
______________ 1. The budget preparation in the Philippines uses a "bottom-up” approach. Under this approach,
the budget preparation starts from the highest levels of the government down to the lowest
levels.
______________ 2. An entity prepares its budget by simply rolling-over the budget in the previous year and adjusting
each line item by 10% increment to reflect inflation. This process is described zero-based
budgeting.
______________ 3. After the budget call from the DBM, the proposed budget of various agencies are submitted
immediately to the Office the President for review.
______________ 4. An entity can incur obligations after receiving notice of its appropriation but before receiving
the allotment.
______________ 5. Budget deliberations in the Congress start in the House of Senate.
______________ 6. A government entity must first receive an allotment before it can incur obligations.
______________ 7. A government entity can make disbursements even before it receives a disbursement authority.
______________ 8. Appropriation is also called obligational authority.


______________ 9. Notice of Cash Allocation (NCA) is an authority issued by the DBM to central, regional and
provincial offices and operating units to cover their cash requirements.
______________ 10. Responsibility accounting greatly enhances budget accountability because managers are
evaluated only in terms of the costs or other variables that they control, and therefore, budget
deviations can be readily attributed to the managers accountable therefor.


1. All disbursements of government entities must be in conformance with the law and the
a. National budget c. PPSASs
b. COA audit findings d. PFRSs
2. An entity prepares its budget for the upcoming year from scratch. It scrutinizes each item in the budget
irrespective of whether the item was included in the previous budget. This process is called
a. zero budgeting c. scratch budgeting
b. incremental budgeting d. zero-based budgeting
3. Under this approach to budgeting. several parties participate in the budget preparation — from the
lowest' levels of government to the highest levels, and sometimes even citizen-stakeholders participate
in the budget preparation.
a. bottoms-up budgeting c. top-down budgeting
b. zero-based budgeting d. bottom-up budgeting
4. What is the correct sequence of the following steps in the budget process?
I. Budget Legislation
II. Budget Accountability
III. Budget Preparation
IV. Budget Execution
a. II, III, I, IV c. III, I, II, IV
b. III, I, IV, II d. III, IV, I, II
5. After deliberations in both houses in the Congress are finished, a committee is formed to harmonize any
conflicts between the Representatives and Senate versions of the General Appropriations Bill. This
committee is called the
a. Adjudication Conference Committee
b. Bicaramel Conference Committee
c. Referee Conference Committee
d. Bicameral Conference Committee


6. It is the authorization made by a legislative body to allocate funds for purposes specified by the legislative
or similar authority.
a. Appropriation c. Obligation
b. Allotment d. Disbursement
7. These are the authorizations programmed annually or for some other period prescribed by law, by virtue
of outstanding legislation which does not require periodic action by Congress.
a. Automatic Appropriations
b. New General Appropriations
c. Continuing Appropriations
d. Supplemental Appropriations
8. Entity A. a government entity, wants to make disbursements. Arrange the following events in the correct
sequence before Entity A can make valid disbursements.
I. Allotment
II. Disbursement Authority
III. Appropriation
IV. Incurrence of Obligation
a. II, III, I, IV c. III, I, II, IV
b. III, I, IV, II d. III, IV, I, II
9. This is necessary before government entities can enter into contracts that bind the government for the
eventual disbursement of government funds
a. Disbursement authority c. Allotment
b. Notice of cash allocation d. Incurrence of obligation
10. Under responsibility accounting. a manager’s performance is evaluated
a. based on all resources under his custody
b. only in terms of the costs or other variables, that he controls.
c. on the basis of both controllable and non-controllable costs
d. only at year-end
C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

I feel (unsatisfactory/satisfactory/excellent) because
_______________________________________________________________.


______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1. The government's estimate of the sources and uses of government funds within a fiscal year. This forms the
basis for expenditures and is the government's key instrument for promoting its socio-economic objectives.
2.
Budget Preparation
Budget Legislation
Budget Execution
Budget Accountability
3. Responsibility accounting is a system of providing cost and revenue information over which a manager has
direct control of. This enables the evaluation of a manager's performance based only on matters that are directly
under his control. Therefore, budget deviations can be readily attributed to the managers accountable therefor.
Activity 3
1. False. Bottom-up starts from the lowest to the budget.

highest levels of the government. 5. False. Budget deliberation should start in the
2. False. Under the zero-based budgeting, the current House of representatives who prepares the GAB to be
year’s budget is promulgated without regard to the forwarded to the Senate for review.
previous year’s budget. 6. True
3. False. After the budget call, the next step should be 7. False. It should be upon the receipt of
budget hearing, whare agencies have to defend their disbursement authority.
prepared budget to DBM. 8. False. Allotment is also called Obligational
4. False. Incurring obligation is authorized after the Authority.
release of allotment since is used as a control devise 9. True
to ensure that releases conform to the national 10. True


Activity 5
1. A
2. D
3. D
4. B
5. D
6. A
7. A
8. B
9. C
10. B


Lesson Title: The Government Accounting Process (Part 1) Materials:

1. State the books of Accounts and Registries used in recording References:
the government transactions. Millan, Z. V. (2018). Government
2. Give the government transactions pro-forma entries. Accounting & Accounting for Non-
Punzalan, A. & Cardona, M (2014).

Government Accounting
Productivity Tip:
“Work gives you meaning and purpose and life is empty without it.” -Stephen Hawking
The government accounting process comprises the activities of analyzing, recording, classifying,
summarizing and communicating transactions involving the receipt and disposition of government funds
and property, and interpreting the results thereof. This process is similar to that of a business entity,
except that it incorporates budgetary controls, such as recording in budget registries and preparing
periodic budget accountability.

Enumerate the different budget
registries.
Enumerate the different classifications

of expenditures by object.
B. MAIN LESSON



Books of Accounts and Registries:
1. Journals
a. General Journal
b. Cash Receipts Journal
c. Cash Disbursements Journal
d. Check Disbursements Journal
2. Ledgers
a. General Ledgers
b. Subsidiary Ledgers
3. Registries – used to monitor the budget
a. Registries of Revenue and Other Receipts (RROR) — used to monitor the budgeted amounts, actual
collections and remittances of revenue and other receipts.
b. Registry of Appropriations and Allotments (RAPAL) — used to monitor appropriations and
allotments. This is to ensure that allotments will not exceed appropriations.
c. Registries of Allotments, Obligations and Disbursements (RAOD) — used to monitor the allotments
received, obligations incurred against the corresponding allotment, and the actual disbursements
made. This is to ensure that obligations incurred will not exceed allotments while actual
disbursements will not exceed the obligations incurred.
d. Registries of Budget, Utilization and Disbursements (RBUD) - used to record the approved special
budget and the corresponding utilizations and disbursements charged to retained income.
Separate RBUDs are also maintained for each object of expenditures.
Object of Expenditures
The classifications of expenditures by object are as follows:
a) Personnel Services (PS) — pertain to all types of employee benefits, e.g., salaries, bonuses, allowances,
cash gifts, etc.
b) Maintenance and Other Operating Expenses (MOOE) - pertain to various operating expenses other than
employee benefits and financial expenses, e.g., travel, utilities, supplies, etc.
c) Financial Expenses (FE) — pertain to finance costs, e.g., interest expense, bank charges, etc. Financial
expenses also include losses on foreign exchange transactions.
d) Capital Outlays (CO) — pertain to capitalizable expenditures, e.g., expenditures on the construction of
public infrastructures, acquisition costs of equipment, etc.
The Government Accounting Cycle

1. Appropriation
2. Allotment


3. Incurrence of Obligation
4. Disbursement of Authority – NCA
5. Disbursements
6. Billings, Collections and Remittances
7. Unadjusted Trial Balance
8. Adjusting Entries
9. Closing Entries
10. Preparation of Financial Statements
Transaction Recording in
Registries & other Records Journal & Ledger
(a) Appropriation RAPAL None
(b) Allotment RAPAL and appropriate RAODs None
(c) Incurrence of Obligations ORL and appropriate RAODs None
RANCA Cash-MDS Regular xx
(d) NCA
Subsidy from NG xx
updating of ORS and Expense/Asset xx
appropriate RAODs Payable xx
(e) Disbursements
Payable xx
Cash-MDS Regular xx
updating of ORS and Cash -TRA xx
appropriate RAODs Subsidy from NG xx
(f) Tax Remittance Advise
Due to BIR xx
Cash – TRA xx
RROR, RCD/CRRegs Accounts Receivable xx
Cash – CO xx
Cash – CO xx
(g) Billings, Collections &
Accounts Receivable xx
remittances
Cash-Treasury/Agency
Deposit Regular xx
Cash – CO xx
RANCA Subsidy from NG xx
(h) Reversion of Unused NCA
Cash-MDS, Regular xx


True or False:
______________ 1. Technically, only Journals and Ledgers are accounting records; Registries are budget records.
______________ 2. Separate accounting records and budget registries maintained for each cluster.
______________ 3. Government entities and business entities use the term “obligation” or the phrase “incurrence of
obligation” similarly.
______________ 4. The various registries maintained by government entities primarily serve as internal control for
controlling and monitoring the conformance of actual results with the approved budget.
______________ 5. A check disbursement is normally recorded as a credit to the “Cash-Modified Disbursement
System (MDS), Regular” account.
______________ 6. Both the ORS and RAOD are updated each time an obligation is incurred, a payable is recorded
for the obligation incurred, and disbursements are made to settle the recorded payables.
______________ 7. At the end of each year, an adjustment is made to revert any unused NCA of a government
entity.
______________ 8. The GAM for NGAs requires the Collecting Officer to issue an official receipt to acknowledge the
receipt of the Notice of Cash Allocation.
______________ 9. The entry to record the reversion of unused NCA at the end of the period is the exact opposite
of the entry used to record the receipt of NCA.
______________ 10. The remittance of amounts withheld to the other government agencies, such as the BIR, BOC,
GSIS, Philhealth and PAG-IBIG, is done through the TRA.

It’s time to answer the questions in the “What I Know Chart” in Activity 2. Write your answers in the “What I
Learned” column. Let’s see your improvement!

Circle the best answer.
1. The various registries maintained by government entities are considered, technically, as
a. Books of accounts c. General Ledgers
b. Budget records d. Log books
2. Which of the following is recorded in the Obligation Request and Status (ORS)?
a. Receipt of notice of appropriation
b. Receipt of allotment from the DBM
c. Receipt of Notice of Cash Allocation from the DBM
d. Entering into employment contracts with employees
3. This type of expenditure pertains to all types of employee benefits
a. Personnel Services (PS)


b. Maintenance and Other Operating Expenses (MOOE)

c. Financial Expenses (FE)
d. Capital Outlays (CO)
4. Entity A, a government entity, made disbursements for the travelling expenses of its personnel. These
expenditures are most likely classified as
a. Personnel Services (PS)
b. Maintenance and Other Operating Expenses (MOOE)
c. Financial Expenses (FE)
d. Capital Outlays (CO)
5. Which of the following is charged with the responsibility of keeping the general accounts, and related
documents of the Government?
a. COA c. NGAs
b. BTr d. DBM
6. A journal entry a to the "Cash Modified Disbursement System (MDS), Regular" account will likely be
recorded in the
a. General Journal c. Cash Disbursements Journal
b. Special Journal d. Check Disbursements Journal
7. Which of the following accounts is debited when a government entity remits its collections to the National
Treasury?
a. Cash-Tax Remittance Advice
b. Cash-Modified Disbursement System (MDS), Regular
c. Cash-Treasury/Agency Deposit, Regular
d. Cash — Collecting Officers
8. Which of the following accounts is credited when a government entity remits taxes withheld to the BIR?
9. Which of the following accounts is credited when a government entity remits contributions to the GSIS,
PhilHealth and Pag-IBIG?
10. Obligations recorded in the registries but not yet in the accounting book are referred to as
a. Not Yet Due and Demandable
b. Contingent liabilities
c. Erroneous recording


d. Unpaid obligations
C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

_______________________________________________________________.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1.
a. Registries of Revenue and Other Receipts (RROR)
b. Registry of Appropriations and Allotments (RAPAL)
c. Registries of Allotments, Obligations and Disbursements (RAOD)
d. Registries of Budget, Utilization and Disbursements (RBUD)
2.
a) Personnel Services (PS)
b) Maintenance and Other Operating Expenses (MOOE)
c) Financial Expenses (FE)
d) Capital Outlays (CO)
Activity 3


1. True 7. True
2. True 8. False. Official receipt shall not be issued since the
3. False. The term obligation is used differently by receipt of NCA does not constitute a collection that is
business entities and government. Government used recordable in the Cash Receipts Journal but only in
the term to refer to “Not yet due and Demandable.” General Journal.
4. True 9. True
5. True 10. True
6. True
Activity 5
1. B 6. A
2. D 7. C
3. A 8. A
4. B 9. B
5. A 10. A


Lesson Title: The Government Accounting Process (Part 2) Materials:

1. Record the basic transactions of a government entity. References:
2. Analyze transactions which would impact the budget Millan, Z. V. (2018). Government
registries. Accounting & Accounting for Non-
Productivity Tip:
“The key is not to prioritize what’s on your schedule, but to schedule your priorities.” - Stephen Covey
Welcome back! Let us continue our discussion on the government accounting process. For this module,
we would like to focus on the different budget registries.

1. What transactions do you record on
the Registries of Allotments,
Obligations, and Disbursements
(RAOD)?
2. What is an Obligation Request and

Status (ORS)?
B. MAIN LESSON



To illustrate how the government records their transaction to different registries, let’s use the following
information:
Entity A (a government agency) receives its GAA consisting of the following:

Personnel Services (PS) 100,000
Maintenance and Other Operating Expenses (MOOE) 60,000
Financial Expenses (FE) 0
Capital Outlays (CO) 200,000
Total appropriation for the current year 20x1 360,000
Registries of Revenue and Other Receipts (RROR)
Registry of Appropriations and Allotments (RAPAL)


Registries of Allotments, Obligations and Disbursements (RAOD)

Receipt of Allotment is subsequently recorded in RAOD registries. To continue with the illustration, Entity
A receives allotment from DBM consisting of the following:
Personnel Services (PS) 90,000
Maintenance and Other Operating Expenses (MOOE) 40,000
Financial Expenses (FE) 0
Capital Outlays (CO) 170,000
Total appropriation for the current year 20x1 300,000
Further, Entity enters into the following contracts:

a) Personnel Services – Job Order amounting to P 70,000.
b) Maintenance and Operating Services – Purchase contract for office supplies worth P 25,000.
c) Capital Outlays – Purchase contract for office equipment worth P 160,000.
Observation: The actual allotment received from DBM was recorded in the RAOD and adjusted by the total
obligation for the purchase of office equipment.
Obligation Request and Status (ORS)


Registry of Allotments and Notice of Cash Allocation (RANCA) – used to determine the amount of allotments
not covered by NCA and to monitor the available balance of NCA.
The entry to record below transaction in the registry, the receipt of NCA from DBM is as follows:
Date Cash -Modified Disbursement System (MDS), Regular 200,000

Subsidy from National Government 200,000


Sample Illustration to Record Government Disbursements and subsequent payments as follows:

1. To set-up payable to officers and employees upon approval of payroll.
Salaries and Wages 35,000

Personal Economic Relief Allowance (PERA) 5,000
Gross Compensation 40,000
Withholding Tax (10,000)
GSIS (2,000)
Pag-IBIG (2,000)
PhilHealth (1,000)
Total Deductions (15,000)
Net 25,000
Entries as follows:
Date Salaries and Wages 35,000
Personal Economic Relief Allowance (PERA) 5,000
Due to BIR 10,000
Due to GSIS 2,000
Due to Pag-IBIG 2,000
Due to PhilHealth 1,000
Due to Officers and Employees 25,000
* To recognized payable to OE upon approval of payroll
Date Advances for Payroll 25,000

Cash MDS, Regular 25,000
* To recognized grant of CA for payroll
Date Due to Officers and Employees 25,000

Advances for Payroll 25,000
* To recognized liquidation of CA Payroll
Date Due to GSIS 2,000

Due to Pag-IBIG 2,000
Due to PhilHealth 1,000
Cash MDS, Regular 5,000
* To recognized remittance for statutory payables


Date Cash – tax Remittance Advice 10,000

Subsidy from National Government 10,000
* To recognized constructive receipt of NCA for TRA
Date Due to BIR 10,000

Cash – tax Remittance Advice 10,000
* To recognized constructive remittance of taxes withheld to
BIR through TRA.
Identification
___________________ 1. This object of expenditure pertains to various operating expenses other than employee
benefits and financial expenses.
___________________ 2. This registry is used to monitor budgeted accounts, actual collections and remittances of
revenue and other receipts.
___________________ 3. This registry is used to determine the amount of allotments not covered by NCA and to
monitor the available balance of NCA.
___________________ 4. This object of expenditure pertains to capitalizable expenditures
___________________ 5. This registry is used to monitor the allotments received; obligations incurred against the
corresponding allotment, and the actual disbursements made.

Identify which registry should the following transactions be recorded. If the transaction is to be recorded
in more than one registry, indicate all:
▪ RROR
▪ RAPAL
▪ RAOD
▪ RANCA
______________________ 1. Allotment
______________________ 2. Reversion of unused NCA
______________________ 3. NCA
______________________ 4. Appropriation
______________________ 5. Disbursements


C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

_______________________________________________________________.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1. Allotments, Incurrence of Obligations, Disbursements, Tax Remittance Advice
2. This is the document needed to certify that there is an incurrence of obligation of a government entity.
Activity 3.
1. Maintenance and Other Operating Expenses
2. Registries of Revenue and Other Receipts
3. Registry of Allotments and Notice of Cash Allocation
4. Capital Outlays
5. Registries of Allotments, Obligations and Disbursements
Activity 5
1. RAPAL/RAOD
2. RANCA
3. RANCA
4. RAPAL
5. RAOD


Lesson Title: Revenues and Other Receipts Materials:

1. State the sources of revenue of a government entity. References:
2. State the recognition and measurement of revenue. Millan, Z. V. (2018). Government
Productivity Tip:
“Absorb what is useful, reject what is useless, add what is specifically your own.” -Bruce Lee
Good Day! As we continue to better understand government accounting, we all know that for the
government to work, it would need funds to finance its projects and operations. Through this module,
we would identify the sources of these funds and how to measure these sources.

1. Enumerate the different types of
funds.
2. How are revenues from non-

exchange transactions recognized?


B. MAIN LESSON
Revenue is the gross inflow of economic benefits or service potential during the reporting period when those
inflows result in an increase in equity, other than increases relating to contributions from owners.
Fundamental Principles of Revenue

a) All revenues of an entity shall be remitted to the National Treasury and included in the General Fund of
the National Government, unless another law specifically allows otherwise.
b) All moneys and property received by a public officer, acting in any capacity or upon any occasion shall
be accounted for as government funds and government property, unless another law specifically states
otherwise
c) Amounts received in trust and from business-type activities of the government may be separately
recorded and disbursed in accordance with relevant rules
d) Receipts shall be recorded as revenue of Special, Fiduciary or Trust Funds, or Funds other than the General
Fund only when authorized by law.
e) A collecting officer shall immediately issue an official receipt (OR) upon collecting a payment of any
nature.
f) Where mechanical devices (e.g., electronic official receipt) are used to acknowledge cash receipts, the
COA may approve, upon request, the exemption from the use of accountable forms
g) Temporary receipts shall, never be used to acknowledge the receipt of public funds.
h) Pre-numbered official receipts (ORs) shall be issued in strict numerical sequence. Duplicate copies shall
be the exact copies of the original.
i) A collecting officer shall accept payments to the government in the form checks, upon proper
endorsement and identification of the payee or endorsee. The collecting officer shall not use government
funds to encash private checks.
j) Receipts of government funds shall be acknowledged in accordance with the law — indicating the date
of receipt, from whom and on what account the fund was received.
Types of Funds
• General fund — a fund which is available for any purpose other than those which other funds have been
designated to.
• Special fund — a fund designated for special purposes.
• Trust fund (Fiduciary fund) — fund held by a government agency or public officer acting as trustee, agent,
or administrator for the fulfillment of a condition.
• Revenue fund – comprises all funds derived from the income of any government agency and available for
appropriation or expenditure in accordance with the law.
• Depository fund – fund held in an authorized depository bank over which the recipient agency retains
control for the lawful purposes for which the fund was received.


• Special Account in the General Fund (SAGF) – established to facilitate the funding of priority activities of
the government. The SAGF is sourced from specific fees, grants and donations, and other sources
identified under the law. The following are the relevant legal provisions regarding the SAGF:
o All income and collections for Special and Fiduciary Funds shall be remitted to the Treasury and
treated as SAGF.
o The SAGF shall be considered as being automatically appropriated for purposed authorized by
law, except when the General Appropriations Act (GAA) provides otherwise.
o SAGF shall be released to government agencies subject to the approval of the President.
• Special Purpose Funds (SPFs) – are “funds that the President allocates for special programs and projects.
Unlike for other funds, SPFs are not under the accountability of any particular government agency/office
or unit.”
Sources of Revenue
a) Exchange transactions (Reciprocal transfers) — are transactions in which one entity receives assets or
services, or has liabilities extinguished, and directly gives approximately equal value to another entity in
exchange.
b) Non-exchange transactions (Non-reciprocal transfers) — are transactions in which an entity either
receives value from another entity without directly giving approximately equal value in exchange, or gives
value to another entity without directly receiving approximately equal value in exchange.
Revenue from exchange transactions are measured at the fair value of the consideration received or receivable.
Revenue from non-exchange transactions are recognized on a cash basis until a reliable measurement model
is developed. The asset and revenue or liability arising from the non-exchange transaction are recognized when
collected or when these are measurable and legally collectible.
Particulars on Revenue Recognition:

• Sale of Goods - Revenue is recognized when significant risks and rewards are transferred; control is not
retained; inflow of economic benefits is probable; and revenue and related costs can be measured reliably.
• Rendering of Services - Revenue is recognized on a straight-line basis. However, revenue is recognized
by reference to the stage of completion if this can be measured reliably. When the outcome cannot be
estimated reliably, revenue is recognized only to the extent of recoverable costs.
• Interest - Recognized on a time proportion basis using effective interest method.
• Royalties – recognized based on the substance of the agreement.
• Dividends – recognized when the right to receive payments is established.
• Exchanges of goods or services – if similar, no revenue is recognized. If dissimilar, revenue is recognized
at (1) FV of asset received or (2) FV of asset given up. Any cash paid or received is adjusted to the FV.


• Gifts, Donations and Goods In-kind – If without condition, recognized immediately. If with condition,
initially recognized as liability until condition is satisfied.
• Services in-kind – not recognized as revenue due to uncertainties affecting entity’s ability to control those
services and measure them at fair value.
• Debt Forgiveness – carrying amount of debt forgiven is recognized as revenue.
• Bequests – recognized as revenue measured at fair value, if asset recognition criteria are met.
• Grant with condition - initially recognized as liability until condition is satisfied.
• Pledges – not recognized as revenue because they do not meet the recognition criteria for asset.
• Concessionary loans – difference between fair value and transaction price is recognized as revenue, if
non-exchange transaction.
• Subsidy from NG and other NGAs – recognized as revenue from assistance and subsidy.
• Receipts from excess cash advance, overpayment of expenses, performance bonds and security deposits,
collections on behalf of other entities, and inter or intra-agency fund transfers – not recognized as
revenue.
True or False.
______________ 1. All revenues shall be remitted to Bureau of Treasury and included in the special Fund, unless
another law specifically requires otherwise.
______________ 2. Payments to government entities in the form of checks are not allowed.
______________ 3. Revenues of a government entity arise from exchange transactions only.
______________ 4. According to the GAM for NGAs, revenues from exchange transactions are measured at the
amount of cash received.
______________ 5. When cash flows are deferred, the fair value of the consideration receivable is its present value.
______________ 6. The constructive remittance of taxes withheld through the TRA gives rise to the recognition of
revenue.
______________ 7. According to the GAM for NGAs, the receipt of concessionary loans by government entities may
give rise to revenue recognition.
______________ 8. The taxable event for income tax is the passage of the time period for which the tax is levied.
______________ 9. Taxes are compulsory payments, imposed on persons, properties or activities, intended to
provide revenue to the government. Taxes include fees, fines and penalties.
______________ 10. The main source of revenue for the government is taxes.




1. Which of the following is a non-exchange transaction?
a. Leasing c. Rendering of legal services
b. Collection of taxes d. Collection of taxes
2. Entity A enters into a long-term contract to provide services. The outcome of the transaction can be
estimated reliably and the progress on the contract can be measured with sufficient reliability. According
to the PPSAS, how should Entity A recognize revenue from the contract?
a. On a straight-line basis over the contract term
b. by reference to the stage of completion of the contract at the reporting date
c. Full recognition of contract price upon completion of the contract
d. Only to the extent of costs that are expected to be recovered
3. According to the GAM for NGAs, interest revenue is recognized
a. on a time proportion basis using effective interest method
b. on a straight-line basis
c. in accordance with the substance of the relevant loan agreement
d. when the entity’s right to receive payment is established
4. The taxable event for Value added tax (VAT) is the
a. undertaking of a taxable activity
b. earning of taxable income
c. movement of dutiable goods or services across the customs boundary
d. any of these
5. Which of the following would result to an increase or decrease in the revenue reported by a government
entity in its statement of financial performance?
a. Impairment loss on an amount already recognized as revenue
b. Receipt of a pledge
c. Receipt of donation in the form of services in kind
d. The repayment of a loan payable is forgiven
6. It is a type of fund held by a government entity that is designated for special purposes
a. General Fund c. Trust Fund
b. Special Fund d. Fiduciary Fund
7. The national government receives a foreign grant conditioned on the construction of a public
infrastructure. According to the GAM for NGAs, when does the national government recognize revenue
from the grant (ie., credit to the Income from Grants and Donations in Cash' account)?
a. Upon receipt of the grant
b. When the grant becomes receivable. provided there is reasonable assurance that the attached
condition will satisfied.
c. When the condition is met
d. When the related expense for which the grant is intended to compensate are incurred


8. The receipt of which of the following may not give rise to revenue by a government entity?
a. Notice of Cash Allocation
b. Tax Remittance Advice
c. Subsidy from another government entity
d. Inter-agency transfer
9. A government entity collects fees for the processing of certain permits. The processing of a permit would
normally take a few minutes. The processing fee is collected upon issuance of the permit. This government
entity would normally recognize revenue from permit fees
a. on a straight-line basis
b. by reference to the stage of completion
c. upon collection of the fee
d. when the significant risks and rewards are transferred to the customer
10. The receipt of a performance bond or a security deposit is credited to a
a. liability account c. cash account
b. revenue account d. a and c
C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

_______________________________________________________________.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.


1.
• General fund
• Special fund
• Trust fund
• Revenue fund
• Depository fund
• Special Account in the General Fund (SAGF)
• Special Purpose Funds (SPFs)
2. Revenue from non-exchange transactions are recognized on a cash basis until a reliable measurement
model is developed. The asset and revenue or liability arising from the non-exchange transaction are recognized
when collected or when these are measurable and legally collectible.
Activity 3
1. False. It should be remitted to National goods or services received, adjusted by the

Treasury. amount of any cash transferred, and 2.) FV of the
2. False. Check payment is allowed but collecting goods and services given up, adjusted by the
officers shall not use government fund to encash amount of any cash transferred.
private checks. 5. True
3. False. Sources of government revenues are from 6. True
exchange transactions and non-exchange 7. True
transactions. 8. False. Property Tax.
4. False. Revenues from Exchange transactions are 9. True
measuring following the order of priority, 1. FV of 10. True
Activity 5
1. B 6. B
2. B 7. C
3. A 8. A
4. A 9. C
5. D 10. A


Lesson Title: Disbursements Materials:

1. State the main concepts in the disbursement of government References:
funds. Millan, Z. V. (2018). Government
2. Account for the different modes of disbursements. Accounting & Accounting for Non-

Productivity Tip:
“We have a strategic plan. It’s called doing things.” -Herb Kelleher
Good Day! Hope you are all safe. As we continue our journey on knowing government accounting better,
we will now dive on how funds are disbursed to the different agencies and government entities.

1. Enumerate the documentary basis for
disbursement authority.
2. What are the different modes of

disbursements?
B. MAIN LESSON



Disbursements
➢ constitute all payments in cash, in whatever manner (ie., cash, check, or other means). Disbursements shall
be supported by Disbursement Vouchers (including Petty Cash Vouchers) or Payroll.
Fundamental Principles for Disbursement of Public Funds

a) All government resources shall be used only in accordance with the law and only for public purposes.
b) Trust funds shall be used only for their specific purpose.
c) Fiscal responsibility shall be strictly shared by all those exercising authority over a government agency.
d) The use of government resources shall be approved by proper officials.
e) Claims against government funds shall be supported with complete documentation.
f) All laws and regulations applicable to financial transactions shall be faithfully adhered to, including
generally accepted principles and practices of accounting, management and fiscal administration,
provided that they do not contravene existing laws and regulations.
Authority to Disburse/Pay
An entity can make disbursements only after it has received a disbursement authority, based on the following:
a) Notice of Cash Allocation (NCA)
b) Notice of Transfer of Allocation (NTA)
c) Tax Remittance Advice (TRA)
d) Non-Cash Availment Authority (NCAA)
e) Cash Disbursement Ceiling (CDC) — authority issued by the DBM to agencies with foreign operations
(i.e., Department of Foreign Affairs 'DFA' and Department of Labor Employment 'DOLE') allowing them to
use the income collected by their Foreign Service posts (FSPS) to cover their operating requirements.
Basic Requirements & Certifications for Disbursements

a) The Budget Officer (or Head of Budget Unit) shall certify the availability of allotment.
b) The Chief Accountant (or Head of Accounting Unit) shall charge obligations against available allotment.
c) The Chief Accountant (or Head of the Accounting Unit) shall certify the availability of funds/cash and the
completeness of the supporting documents before the Head of Agency (or his authorized representative)
can enter into any contract involving the expenditure of public funds.
d) The requesting and approving officials shall ensure that the disbursements are legal and conform to
applicable rules and regulations.
e) The Head of the Requesting Unit shall certify the necessity and legality of disbursements. Payments shall
be made through Disbursement Vouchers (DVs) or payroll and supported by original copies of supporting
documents.
f) The Head of Agency (or his authorized representative) shall approve all DVs or Payrolls.


Modes of Disbursements
a) Cash
b) Check
c) Cashless payments
a. Advice to Debit Account (ADA)
b. Electronic Modified Disbursement System (eMDS)
c. Cashless Purchase Card System (Credit Card)
d. Non-Cash Availment Authority (NCAA)
e. Tax Remittance Advice (TRA)
True or False.
______________ 1. No additional cash advance shall be given to any official or employee unless the previous cash
advance given to him is first liquidated.
______________ 2. All disbursements require prior certifications to establish their validity and legality. A certification
for fictitious obligation is void and results to criminal liability by the certifying officials.
______________ 3. Entity A acquires equipment from a supplier on account. A lender settles the account of Entity A
by directly paying the supplier the proceeds of a loan payable that is recorded in the BTr's books.
This transaction is called Cash Disbursement Ceiling (CDC).
______________ 4. All disbursements shall be made through Disbursement Vouchers (DVs) or payroll which are
approved by the Head of the Requisitioning Unit.
______________ 5. Government entities are not allowed by law to make purchases using credit card.
______________ 6. The Non-Cash Availment Authority (NCAA) is a disbursement authority issued to government
agencies with foreign service posts.
______________ 7. According to the GAM for NGAS the Advice to Debit Account (ADA) mode of disbursement can
be used only if the payee maintains an account in the same bank where the government entity
maintains its account.
______________ 8. Disbursements through the Cash Disbursement Ceiling (CDC) results to the recognition of a loan
payable in the books of accounts of the Bureau of Treasury.
______________ 9. Under the Advice to Debit Account (ADA) mode of disbursement, payments from a government
entity is directly credited to the bank accounts of the payees through fund/bank transfers.
______________ 10. The only valid modes of disbursement for a government entity through cash or check.



Circle the letter of the best answer

1. A certification on the availability of allotment is required before a disbursement of government funds is
made. According to the GAM for NGAs, who shall issue this certification?
a. Budget Officer c. Head of Agency
b. Chief Accountant d. Requisitioning Individual
2. The Chief Accountant shall charge obligations incurred against available allotment to ensure that
a. the NCA is sufficient to meet the disbursement needs
b. there are no unreleased appropriations
c. no overdraft is incurred
d. no excess allotment exists
3. A certification on the availability of funds and completeness of supporting documents is required before
a disbursement of government funds is made. According to the GAM for NGAs, who shall issue this
certification?
a. Budget Officer c. Head of Agency
b. Chief Accountant d. Requisitioning Individual
4. Which of the following results to the recognition, in the books of accounts, of expenses classified as
Personnel Services?
a. Granting of cash advance for payroll
b. Liquidation of payroll fund
c. Issuance of office supplies to end users
d. set up of payable for payroll
5. According to the GAM for NGAs, disbursements for salaries and wages shall be supported by
a. Disbursement Vouchers c. Petty Cash Vouchers
b. Payroll d. Official Receipts
6. Which of the following results to the recognition of expense?
a. Granting of cash advance for travel
b. Liquidation of cash advance for travel
c. Refund of excess cash advance
d. Remittance of the refund for excess cash advance to the BTr
7. The entry in the books of a government agency with foreign service post to record the receipt of
disbursement authority called the Cash Disbursement Ceiling (CDC) includes a
a. debit to Cash-Modified Disbursement System (MDS)
b. credit to Subsidy from National Government
c. credit to Cash-Constructive Income Remittance
d. debit to Subsidy from National Government
8. This is used to recognize: (1) in the books of national government agencies, the constructive remittance
to BIR and BOC of taxes and customs' duties withheld, and the constructive receipt of NCA for those taxes
and customs duties; (2) in the books of the BIR and BOC, the constructive receipt of tax revenue and


customs duties; and (3) in the books of the BTr, the constructive receipt of the taxes and customs duties
remitted
a. Notice of Cash Allocation (NCA)
b. Tax Remittance Advice (TRA)
c. Cash Disbursement Ceiling (CDC)
9. All of the following are considered valid cashless disbursements, except
a. purchase of goods using an electronic card issued by CitiBank
b. payment of payables using Non-Cash Availment Authority
c. remittance of taxes withheld to the BIR through Tax Remittance Advice
d. online payment through LBP’s eMDS.
e. payment to a supplier through LBC padala.
10. Which of the following government agencies will most likely be able to obtain a disbursement authority
in the form of Cash Disbursement Ceiling (CDC)?
a. BIR c. DFA
b. DPWH d. NFA
C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

_______________________________________________________________.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________


KEY TO CORRECTIONS
Activity 1 and 4.
1.
a) Notice of Cash Allocation (NCA)
b) Notice of Transfer of Allocation (NTA)
c) Tax Remittance Advice (TRA)
d) Non-Cash Availment Authority (NCAA)
e) Cash Disbursement Ceiling (CDC)
2.
a) Cash
b) Check
c) Cashless payments
a. Advice to Debit Account (ADA)
b. Electronic Modified Disbursement System (eMDS)
c. Cashless Purchase Card System (Credit Card)
e. Tax Remittance Advice (TRA)
Activity 3
1. True 7. True
2. True 8. False. Disbursement through
3. False. This is Disbursement through NCAA also NCAA is issued by BTr to agencies to record
called Direct Payment Method or Direct Payment payment of goods and services directly by the
Scheme of Loan Availment. lending institution to the supplier or contractor.
4. True
5. False. Use of credit card is allowed under 9. True
disbursement through Cashless Purchase Card. 10. False. Mode of payments are cash, check, and
6. False. Cash Disbursement Ceiling or CDC. cashless payments.
Activity 5
1. B 6. A
2. C 7. B
3. D 8. B
4. D 9. E
5. B 10. C


Lesson Title: Financial Assets Materials:

At the end of this module, you should be able to:
1. Define a financial asset and give examples. References:
2. Account for cash and cash equivalents. Millan, Z. V. (2018). Government
3. Account for receivables. Accounting & Accounting for Non-
4. Account for investments. Profit Organizations.

Productivity Tip:
“Simplicity boils down to two steps: Identify the essential. Eliminate the rest.” -Leo Babauta
we will see how government entities treat various financial assets.

1. Define a Financial Asset.
2. Give at least three unique elements of

the Petty Cash Fund of a government
Entity.
B. MAIN LESSON



Financial instrument is any contract that gives rise to both a financial asset of one entity and a financial liability
or equity instrument of another entity.
Financial Asset - is any asset that is:

• Cash
• An equity instrument of another entity.
• A contractual right to receive cash or another financial asset from another entity.
• A contractual right to exchange financial instruments with another entity under conditions that are
potentially favorable.
• A contract that will or may be settled in the entity's own equity instruments.
Financial Liability - is any liability that is:

• A contractual obligation to deliver cash or another financial asset to another entity.
• A contractual obligation to exchange financial assets or financial liabilities with another entity under
conditions that are potentially unfavorable to the entity.
Equity Instrument - is any contract that evidences a residual interest in the assets of an entity after deducting
all of its liabilities.
Accounting for Financial Instruments
Initial Recognition
A financial asset is recognized when an entity becomes a party to the contractual provisions of the instrument.
(PPSAS 29.16)
Initial Measurement
Financial assets are initially measured at fair value plus transaction costs, except for financial assets at fair value
through surplus or deficit whose transaction costs are expensed.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue, or disposal of a
financial instrument. Transaction cost are amortized using the effective rate of interest.
Cash and Cash Equivalents

Cash and Cash Equivalents - comprises cash on hand, cash in bank and cash treasury accounts.


Adjustments for Unreleased Commercial Checks

Unreleased checks are checks drawn but not yet given to the payees as of the end of the period. Unreleased
checks are reverted back to cash. Pro-forma entries to record as follows:
Date Cash in Bank, Local Currency-Current xx

Accounts Payable (or appropriate account) xx
Accounting for Cancelled Checks

Checks are cancelled when they become stale, voided or spoiled. A check is considered stale if it has been
outstanding for over 6 months from its date. Replacement checks may be issued for cancelled checks that were
already released to payees, upon submission of the cancelled checks to the Accounting Unit. Cancelled checks
are reverted back to cash as follows:
Current Year:
Cash-Modified Disbursement System (MDS), Regular xx
Prior Period:
Accumulated Surplus/(Deficit) xx
Petty Cash Fund

Petty Cash Fund (PCP) refers to the amount granted to duly designated Petty Cash Fund Custodian for payment
of authorized petty or miscellaneous expenses which cannot be conveniently paid through checks or ADA. (GAM
for NGAs, Chapter 6, Sec. 2)
Guidelines:
• The Head of Agency shall approve the amount of PCF to be established, which shall be sufficient to defray
recurring petty expenses for 1 month.
• The PCF Custodian shall be properly bonded whenever the established amount of PCF exceeds P5,000.
• The PCF shall be maintained using the Imprest System. At all times, total cash on hand and unreplenished
expenses shall be equal to the PCF ledger balance.
• The PCF shall be kept separately from other advances or collections and shall not be used to pay for
regular expenses, such as rentals, electricity, water, and the like.
• PCF payments shall not exceed P15,000 for each transaction, except when otherwise authorized by law
or by the COA. Splitting of transactions to avoid exceeding the ceiling is prohibited.


• A canvass from at least 3 suppliers is required for purchases amounting to P 1,000 and above, except for
purchases made while on official travel.
• PCF disbursements shall be supported by properly accomplished and approved Petty Cash Vouchers,
invoices, ORs, or other evidence of disbursements.
• Replenishment shall be made as soon as disbursements reach at least 75% or as needed.
• At the end of the year, the PCF Custodian shall submit all unreplenished Petty Cash Vouchers to the
Accounting Unit for recording in the books of accounts.
• The unused balance of the PCF shall not be closed at year-end. It shall be closed only upon the
termination, separation, retirement or dismissal of the PCF Custodian, who in turn shall refund any balance
to close his/her cash accountability.
Accounting for Cash Shortage/Overage of Disbursing Officer

The disbursing officer is liable for any cash shortage while any cash overage that he cannot satisfactorily explain
to the auditor, is forfeited in favor of the government.
Dishonored Checks
A dishonored check is a check that is not accepted when presented for payment, e.g., a check returned by the
bank because of lack of sufficient funds - 'bounced' check.
The drawer of the dishonored check is liable for the amount of the check and all penalties resulting from the
dishonor, without prejudice to his criminal liability for a 'bounced' check.
Guidelines:
• When the check is dishonored, the Collecting Officer shall:
o Issue a Notice of Dishonored Checks to the drawer and any endorser.
o Cancel the related OR.
• If the Collecting Officer fails to issue the notice, the dishonored check becomes his personal liability. The
drawer and any endorser not given the notice will be relieved from any liability.
• A check refused by the drawee bank when presented within 90 days from its date is a prima facie evidence
that the drawer has knowledge about the insufficiency of his funds, unless the drawer pays the check in
full or makes arrangement with the drawee bank for the full payment of the check within 5 banking days
after receiving the notice of the dishonor.
• A dishonored check shall be settled by the payment in cash or certified check. The dishonored check shall
not be returned to the payor unless he returns first the previous OR thereof.
Bank Reconciliation
A bank reconciliation statement is a report that is prepared for the purpose of bringing the balances of cash (a)
per records, and (b) per bank statement into agreement.
A bank statement is a report issued by a bank which shows the credits and debits to the depositor's account


during a period, as well as the account's cumulative balance.
Guidelines:
• Bank reconciliations shall be prepared as internal control to ensure the correctness of cash records and
as deterrent to fraud.
• The Chief Accountant or designated staff shall prepare separate bank reconciliations for each bank
account maintained by the entity within 10 days from receipt of the monthly bank statement.
• The Adjusted Balance Method shall be used. Under this method, the unadjusted book and bank balances
are brought to an adjusted balance that is reported on the Statement of Financial Position.
• Bank reconciliations shall be prepared in 4 copies to be submitted within 20 days from receipt of bank
statement to the following: COA Auditor, Head of Agency, Accounting Division, and Bank, if necessary.
• A Journal Entry Voucher (JEV) shall be prepared to record any reconciling items.
Cash Equivalents
Cash Equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value. (PPSAS 2.8)
Only debt instruments acquired within 3 months before their scheduled maturity date can qualify as cash
equivalents.
Receivables
Receivables represent claims for cash or other assets from other entities. Examples:
• Accounts Receivable – refers to amounts due from customers arising from regular trade and business
transactions.
• Notes Receivable – represents claims, usually with interest, for which a formal instrument of credit is
issued as evidence of debt, such as promissory notes.
• Loans Receivable – used in the BTr-NG books to recognize loans extended by the National Government
to Government Financial Institutions ‘GFIs’ or GOCCs, covered by loan agreements.
• Other receivables, such as, interest receivable, due from employees/officers/other NGAs, lease
receivables, dividend receivable, and the like.
Receivables are initially measured at fair value plus transaction costs and subsequently measured at amortized
cost.
Investments
Categories of Financial Assets:
• Financial asset at fair value through surplus or deficit – is one that is either:


o Held-for trading.
o Designated as at fair value through surplus or deficit on initial recognition.
• Held-to-maturity investments – are non-derivative financial assets with fixed or determinable payments
and fixed maturity that an entity has the positive intention and ability to hold until maturity.
• Loans and receivables – non-derivative financial assets with fixed or determinable payments and are not
quoted in an active market.
• Available-for-sale financial assets – are non-derivative financial assets that are designated as available for
sale or are not classifiable under the other categories.
Subsequent
Type of Financial Asset Examples Initial Measurement
Measurement
Fair value; changes in fair
Financial Asset at FV Investments in quoted
Fair value value are recognized in
through surplus or deficit stocks or bonds.
surplus/deficit.
Investment in bonds and
Fair value plus transaction Amortized cost (using the
Held–to- Maturity other debt securities to
cost effective interest method)
be held until maturity.
Accounts, Notes, Loans Fair value plus transaction Amortized cost (using the
Loans and Receivables
Receivable cost effective interest method
Available-for-sale Investment in stocks not Fair value plus transaction Amortized cost (using the
Financial Assets classified under (a) or (c) cost effective interest method
Impairment of Financial Assets

An entity shall assess at the end of each reporting period whether there is any objective evidence that a financial
asset or group of financial assets is impaired. If any such evidence exists, the entity shall measure the amount of
loss as the difference between carrying amount of the asset and the present value of estimated future cash flows
discounted at the financial asset's original effective interest rate. The carrying amount of the asset shall be
reduced either directly or through the use of an allowance account. The amount of the loss shall be recognized
in surplus or deficit.
Derecognition of Financial Assets

Derecognition is the process of removing a previously recognized asset, liability or equity from the statement of
financial position.
A financial asset is derecognized when:

a. The contractual rights to the cash flows from the financial asset expire or are waived.
b. The financial asset is transferred, and the transfer qualifies for derecognition, such as when the risks and
rewards of ownership and control, of the financial asset are relinquished.


The derecognition of financial assets is subject to the provisions of the State Audit Code of the Philippines (POD.
No. 1445) on the writing off of receivables and other policies issued by the COA. (GAM for NGAs, Chapter 7, sec.
10)
Derivatives
A derivative is a financial instrument or other contract that derives its value from the changes in value of some
other underlying asset or other instrument.
Characteristics of a derivative
a. Its value changes in response to the change in an underlying;
b. It requires no initial net investment (or only a very minimal initial net investment), and
c. It is settled at a future date.
An "underlying" is a specified price, rate, or other variable (e.g., interest rate, security or commodity price, foreign
exchange rate, index of prices or rates, etc.), including a scheduled event (e.g., a payment under contract) that
may or may not occur.
Purpose of a derivative
The very purpose of derivatives is risk management. Risk management is the process of identifying the desired
level of risk identifying the actual level of risk and altering the latter to equal the former. (GAM for NGAs, Chapter 7,
sec. 19)
Hedging
Hedging is a method of offsetting a potential financial loss or the structuring of a transaction to reduce risk
involving financial instruments.
Hedge accounting recognizes the offsetting effects on surplus or deficit of changes in the fair values of the
hedging instrument and the hedged item.
Hedging Relationships
• Fair value hedge — a hedge of the exposure to changes in fair value of a recognized asset or liability or
an unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment,
that is attributable to a particular risk and could affect surplus or deficit.
• Cash flow hedge — a hedge of the exposure to variability in cash flows that (i) is attributable to a
particular risk associated with a recognized asset or liability (such as all or some future interest payments
on variable rate debt) or a highly probable forecast transaction and (ii) could affect surplus or deficit.
• Hedge of a net investment in a foreign operation.
Components of a Hedging Relationship


• Hedging Instrument - a designated derivative or a designated non-derivative financial asset or non-

derivative financial liability whose fair value or cash flows are expected to offset changes in the fair value
or cash flows of designated hedged item.
• Hedged Item - an asset, liability, firm commitment, highly probable forecast transaction or net investment
in a foreign operation that (a) exposes that entity to risk of changes in fair value or future cash flows and
(b) is designated as being hedged.
True or False.
______________ 1. According to the GAM for NGAs, all financial assets are initially measured at fair value.
______________ 2. According to the GAM for NGAs, government entities shall prepare bank reconciliations only at
year-end or whenever the need arises.
______________ 3. Only debt instruments with remaining maturity of 3 months or less can qualify as cash
equivalents.
______________ 4. The PCF of a government entity is replenished when disbursements reach at least 90%, or as
needed.
______________ 5. No journal entry is prepared when a disbursement is made out of the petty cash fund.
______________ 6. A government entity established a P30,000 petty cash fund. The custodian must be bonded for
at least P5,000.
______________ 7. According to the GAM for NGAs, all financial assets shall be initially measured at fair value plus
transaction costs.
______________ 8. Transaction costs on financial assets classified under the held to maturity category are expensed
outright.
______________ 9. A derivative derives its value from the changes in value of a specified rate, price, event or some
other variable.
______________ 10. Risk management is the process of identifying the desired level of risk, identifying the actual
level of risk and altering the latter to equal the former.


1. Which of the following is not considered a financial asset?
a. Petty cash fund c. Accounts receivable
b. Investment in debt securities d. Prepaid assets
2. A cash shortage of a government entity is most likely recorded as a


a. debit to a receivable account

b. debit to a cash shortage or overage account
c. credit to miscellaneous income account
d. credit to a cash shortage or overage account
3. Dishonored checks are recorded by a government entity as
a. Notes receivable c. Accounts receivable
b. Other receivables d. Losses
4. The entry to record the replenishment of a petty cash fund of a government entity is
a. Expense accounts xxx
Cash-Modified Disbursement System (MDS), Regular xxx
b. Expense accounts xxx
Petty Cash xxx
c. Expense accounts xxx
Cash-Collecting Officers xxx
d. Expense accounts xxx
Cash-Treasury/Agency Deposit, Regular xxx
5. Under this method of bank reconciliation statement preparation, the unadjusted book and bank balances
are brought to an adjusted balance that is reported on the statement of financial position.
a. Bank to Book Method c. Adjusted Balance Method
b. Book to Bank Method d. All of these
6. Which of the following may be paid through the petty cash fund of a government entity?
a. Rent worth P 12,000
b. Pantry supplies worth P 15,000
c. Office supplies worth P 20,000
d. None of these
7. Entity A maintains a petty cash fund. At any given point of time, the cash on hand and the petty cash
vouchers must be equal to the ledger balance of the petty cash fund, If these are not equal, the difference
is either shortage or overage. This system of handling petty cash fund is called
a. Impress System
b. Fluctuating Balance System
c. Pretty Cash System
d. Imprest System
8. According to the GAM for NGAs, the establishment of a petty cash fund
a. requires the approval of the Head of Agency
b. requires the approval of the Chief Accountant
c. requires the approval of the President of the Philippines
d. does not require any formal approval because petty cash


9. The "Loans Receivable" account is most likely to be used in the books of accounts of which of the
following government agencies?
a. COA c. BTr
b. NIA d. All of these
10. Which of the following is not one of the characteristics of a derivative?
a. It requires no notional amount (or only a very minimal notional amount)
b. Its value changes in response to the change in an underlying.
c. It requires no initial net investment (or only a very minimal initial net investment)
d. It is settled at a future date
C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

_______________________________________________________________.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1. Financial Asset - is any asset that is:
• Cash
• An equity instrument of another entity
• A contractual right to receive cash or another financial asset from another entity
potentially favorable


2.
a) Maintained using the imprest system
b) Sufficient to defray recurring petty expenses for 1 month.
c) Used for disbursements not exceeding P 15,000 per transaction
d) Replenished as soon as disbursements reach at least 75% or as needed
Activity 3
1. False. It is measured either at Fair value or Fair disbursement reached 75% or as necessary.
value plus transaction costs. 5. False. Petty cash vouchers are turned over to
2. False. Bank statement is prepared within 10 Accounting Unit for recording.
days from the receipt of bank statement by Chief 6. True
Accountant or designated staff and shall be 7. True
submitted to COA Auditor, Head of Agency, 8. False. Transaction costs on financial assets are
Accounting Division and Bank as necessary within amortized using the effective interest method.
20 days from the receipt of bank statement. 9. True
3. True 10. True
4. False. PCF replenishment is made as soon as
Activity 5
1. D 6. A
2. A 7. D
3. B 8. A
4. A 9. C
5. D 10. A


Lesson Title: Financial Assets, continuation Materials:

1. Account for Impairment of Assets References:
2. Account for derivatives Millan, Z. V. (2018). Government

Productivity Tip:
“Simplicity boils down to two steps: Identify the essential. Eliminate the rest.” -Leo Babauta
Good Day! In the first part of Financial Asset, we are able to understand the concepts of Financial assets
and give examples. In this module, we will see further composition and accounting of financial assets
Impairment and derivatives.
Derivatives
A derivative is a financial instrument or other contract that derives its value from the changes in value of some
other underlying asset or other instrument.
Characteristics of a derivative
a. Its value changes in response to the change in an underlying;
b. It requires no initial net investment (or only a very minimal initial net investment), and
c. It is settled at a future date.
An "underlying" is a specified price, rate, or other variable (e.g., interest rate, security or commodity price, foreign
exchange rate, index of prices or rates, etc.), including a scheduled event (e.g., a payment under contract) that
may or may not occur.
Purpose of a derivative


The very purpose of derivatives is risk management. Risk management is the process of identifying the desired
level of risk identifying the actual level of risk and altering the latter to equal the former. (GAM for NGAs, Chapter 7,
sec. 19)
Hedging
Hedging is a method of offsetting a potential financial loss or the structuring of a transaction to reduce risk
involving financial instruments.
Hedge accounting recognizes the offsetting effects on surplus or deficit of changes in the fair values of the
hedging instrument and the hedged item.
Hedging Relationships
• Fair value hedge — a hedge of the exposure to changes in fair value of a recognized asset or liability or
an unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment,
that is attributable to a particular risk and could affect surplus or deficit.
• Cash flow hedge — a hedge of the exposure to variability in cash flows that (i) is attributable to a
particular risk associated with a recognized asset or liability (such as all or some future interest payments
on variable rate debt) or a highly probable forecast transaction and (ii) could affect surplus or deficit.
• Hedge of a net investment in a foreign operation.
Components of a Hedging Relationship

• Hedging Instrument - a designated derivative or a designated non-derivative financial asset or non-
derivative financial liability whose fair value or cash flows are expected to offset changes in the fair value
or cash flows of designated hedged item.
• Hedged Item - an asset, liability, firm commitment, highly probable forecast transaction or net investment
in a foreign operation that (a) exposes that entity to risk of changes in fair value or future cash flows and
(b) is designated as being hedged.
True or False.
______________ 1. According to the GAM for NGAs, all financial assets are initially measured at fair value.
______________ 2. According to the GAM for NGAs, government entities shall prepare bank reconciliations only at
year-end or whenever the need arises.
______________ 3. Only debt instruments with remaining maturity of 3 months or less can qualify as cash
equivalents.
______________ 4. The PCF of a government entity is replenished when disbursements reach at least 90%, or as
needed.
______________ 5. No journal entry is prepared when a disbursement is made out of the petty cash fund.
______________ 6. A government entity established a P30,000 petty cash fund. The custodian must be bonded for


at least P5,000.
______________ 7. According to the GAM for NGAs, all financial assets shall be initially measured at fair value plus
transaction costs.
______________ 8. Transaction costs on financial assets classified under the held to maturity category are expensed
outright.
______________ 9. A derivative derives its value from the changes in value of a specified rate, price, event or some
other variable.
______________ 10. Risk management is the process of identifying the desired level of risk, identifying the actual
level of risk and altering the latter to equal the former.


1. Which of the following is not considered a financial asset?
a. Petty cash fund c. Accounts receivable
b. Investment in debt securities d. Prepaid assets
2. A cash shortage of a government entity is most likely recorded as a
a. debit to a receivable account
b. debit to a cash shortage or overage account
c. credit to miscellaneous income account
d. credit to a cash shortage or overage account
3. Dishonored checks are recorded by a government entity as
a. Notes receivable c. Accounts receivable
b. Other receivables d. Losses
4. The entry to record the replenishment of a petty cash fund of a government entity is
a. Expense accounts xxx
Cash-Modified Disbursement System (MDS), Regular xxx
b. Expense accounts xxx
Petty Cash xxx
c. Expense accounts xxx
Cash-Collecting Officers xxx
d. Expense accounts xxx
Cash-Treasury/Agency Deposit, Regular xxx
5. Under this method of bank reconciliation statement preparation, the unadjusted book and bank balances
are brought to an adjusted balance that is reported on the statement of financial position.


a. Bank to Book Method c. Adjusted Balance Method

b. Book to Bank Method d. All of these
6. Which of the following may be paid through the petty cash fund of a government entity?
a. Rent worth P 12,000
b. Pantry supplies worth P 15,000
c. Office supplies worth P 20,000
d. None of these
7. Entity A maintains a petty cash fund. At any given point of time, the cash on hand and the petty cash
vouchers must be equal to the ledger balance of the petty cash fund, If these are not equal, the difference
is either shortage or overage. This system of handling petty cash fund is called
a. Impress System
b. Fluctuating Balance System
c. Pretty Cash System
d. Imprest System
8. According to the GAM for NGAs, the establishment of a petty cash fund
a. requires the approval of the Head of Agency
b. requires the approval of the Chief Accountant
c. requires the approval of the President of the Philippines
d. does not require any formal approval because petty cash
9. The "Loans Receivable" account is most likely to be used in the books of accounts of which of the
following government agencies?
a. COA c. BTr
b. NIA d. All of these
10. Which of the following is not one of the characteristics of a derivative?
a. It requires no notional amount (or only a very minimal notional amount)
b. Its value changes in response to the change in an underlying.
c. It requires no initial net investment (or only a very minimal initial net investment)
d. It is settled at a future date
C. LESSON WRAP-UP
you finished.
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_______________________________________________________________.


______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1. Financial Asset - is any asset that is:
• Cash
• An equity instrument of another entity
• A contractual right to receive cash or another financial asset from another entity
potentially favorable
2.
a) Maintained using the imprest system
b) Sufficient to defray recurring petty expenses for 1 month.
c) Used for disbursements not exceeding P 15,000 per transaction
d) Replenished as soon as disbursements reach at least 75% or as needed
Activity 3
1. False. It is measured either at Fair value or Fair disbursement reached 75% or as necessary.
value plus transaction costs. 5. False. Petty cash vouchers are turned over to
2. False. Bank statement is prepared within 10 Accounting Unit for recording.
days from the receipt of bank statement by Chief 6. True
Accountant or designated staff and shall be 7. True
submitted to COA Auditor, Head of Agency, 8. False. Transaction costs on financial assets are
Accounting Division and Bank as necessary within amortized using the effective interest method.
20 days from the receipt of bank statement. 9. True
3. True 10. True
4. False. PCF replenishment is made as soon as
Activity 5


1. D 6. A
2. A 7. D
3. B 8. A
4. A 9. C
5. D 10. A

Student Activity Sheet Module #12

Lesson Title: Inventories Materials:

1. Account for inventories by a government entity. References:
2. Describe the procedures in the receipt and disposition of Millan, Z. V. (2018). Government
inventories by a government entity. Accounting & Accounting for Non-

Productivity Tip:
“The tragedy in life doesn’t lie in not reaching your goal. The tragedy lies in having no goal to reach.” -
Benjamin E. Mays
we will see how government entities account for various inventories.

1. Give at least three examples
inventories of the government.
2. What inventory system does the

government use?
B. MAIN LESSON



Inventories are assets:
• Held for sale or distribution in the ordinary course of operations (Finished goods).
• In the process of production for sale or distribution (Work in process).
• In the form of materials or supplies to be consumed in the production process or distributed in the
rendering of services (Raw materials and supplies).
More specifically, the inventories of a government entity consist of the following:

• Inventory Held for Sale (e.g., medicines for sale in government pharmacies) .
• Inventory Held for Distribution (e.g., rice and other welfare goods held for distribution).
• Inventory Held for Manufacturing (e.g., raw materials, work- in-process).
• Inventory Held for Consumption (e.g., office supplies inventory).
• Semi-Expendable Property - consists of machinery, equipment, furniture and fixtures and similar items
that are not capitalized as PPE because their costs are below the P 15,000 capitalization threshold for PPE.
Measurement
Inventories are initially measured at cost and subsequently measured as follows:
Goods held for sale – Lower of Cost and Net realizable value.
Goods held for distribution – Lower of Cost and Current replacement cost.
Cost comprises the following:

• Purchase cost, excluding trade discounts, rebates, and other similar deductions in purchase price.
• Direct costs incurred in bringing the asset to its intended location and condition (e.g., freight costs,
conversion costs - such as costs of labor and production overhead for manufactured items).
Cost excludes the following:

• Abnormal amounts of wasted materials, labor, and production overhead.
• Selling costs.
• Administrative overheads.
Net Realizable Value – estimated selling price less estimated costs of completion and estimated selling/disposal
costs.
Current replacement costs – the cost the entity would incur to acquire the asset on the reporting date.
Cost Formulas
• Specific Identification - this shall be used for items that are not ordinarily interchangeable (i.e., unique)
and those that are segregated for specific projects. Under this formula, specific costs are attributed to
identified items of inventory. Accordingly, cost of sales represents the actual costs of the specific items


sold while ending inventory represents the actual costs of the specific items on hand.
• Weighted average cost — this shall be used for large numbers of items of inventory that are ordinarily
interchangeable. This shall be applied under a perpetual inventory system. Under this formula, a new
weighted average unit cost is computed after every purchase. The computed average costs are used in
determining the cost of goods sold and inventory on hand. Accordingly, cost of sales and ending
inventory are stated at average costs, rather than at the actual costs of the inventories sold or on hand.
This method is commonly referred to in traditional accounting by business entities as the "moving
average" cost formula.
Government entities shall use the perpetual inventory

system
Recognition as an Expense
The carrying amount of an inventory is recognized as expense in the period it is sold, distributed, exchanged, or
consumed. The write-down of inventory to its NRV or Current replacement cost, as appropriate, is also recognized
as expense.
Receipt and Disposition of inventories
Receipt
1. End users prepare the Purchase Request (PR) form to request for the purchase of items not available on
stock. The PR is the basis in preparing the Purchase Order. End users refers to the individuals who will
actually be using the items.
2. The authorized official prepares the Purchase Order (PO). The PO is a document issued to the supplier
when making a purchase. It indicates the specifications, quantities, and agreed prices of the items being
purchased. The PO serves as the contract between the entity and the supplier.
3. When the purchased items are delivered, the Property/Supply Division signs the "received" portion of the
Delivery Receipt (DR) and prepares the Inspection and Acceptance Report (IAR). The IAR will be used by
the Property Inspector in inspecting and accepting the delivered items. The Property/Supply Division
forwards the DR, IAR and PO to the Property Inspector.
4. The Property Inspector inspects the conformance of the delivered items with the specifications in both
the PO and DR and indicates the result of the inspection (i.e., acceptance or rejection) in the IAR. Rejected
deliveries will be returned to the supplier. The Property Inspector forwards the copies of DR, IAR and PO
to both the Property/ Supply Division and Accounting Division for recording.
5. The Property/Supply Division, through the Stock Card Keeper, records the accepted deliveries in the stock
card (SC). The SC shows the quantities of all receipts and issuances of inventory, as well as the available
balance at any given point of time.
6. The Accounting Division records the accepted deliveries in the books of accounts and in the Supplies
Ledger card (SLC). The SLC shows both the quantities and monetary amounts of all receipts and issuances


of inventory, as well as the available balance at any given point of time. As an internal control, the SC
(maintained by the Property/Supply Division) and SLC (maintained by the Accounting Division) are
periodically reconciled.
7. The Property/Supply Division prepares the Disbursement Voucher (DV) then forwards it, together with
supporting documents, to the Accounting Division for processing of payment.
Disposition
8. End users prepare the Requisition and Issue Slip (RIS) to request for the issuance of items available on
stock. The Head of the requesting individual shall approve the RIS. The approved RIS is then forwarded
to the Property/Supply Division.
9. The Property/Supply Division prepares the Report of Supplies and Materials Issued (RSMI). The RSMI will
be used by the Stock Card Keeper in updating the SC and the Accounting Division in journalizing the
items issued.
10. The Accounting Division records the items issued in the books of accounts and updates the SLC.
11. The following are other documents used in the disposition of inventories:
a. Waste Materials Report - prepared by the Property or Supply Custodian to report wasted materials,
such as destroyed spare parts and other spoilages.
b. Report on the Physical Count of Inventories – used in reporting the results of physical counts. It
shows the balance of inventory, as well as any shortages or overages.
c. Report of Accountability for Accountable Forms – used in report the movement and status of
accountable forms in the possession of an officer.
d. Inventory Custodian Slip – prepared when issuing semi-expendable property.
True or False.
______________ 1. According to the GAM for NGAs, inventories of government entities are subsequently measured
at net realizable value or current replacement cost depending on whether the inventory is
classified as held for sale or held for distribution.
______________ 2. According to the GAM for NGAs, purchases of machinery, equipment, furniture and fixtures and
similar items below the P 10,000 capitalization threshold for PPE are recorded as inventories.
______________ 3. Relief goods, office supplies, equipment and furniture and fixture are items that may
appropriately be recorded as inventories by a government entity.
______________ 4. The GAM for NGAs allows government entities to use the FIFO cost flow formula.
______________ 5. The GAM for NGAs allows government entities to use a periodic inventory system.
______________ 6. The specific identification cost formula is not available for use by government entities, according
to the GAM for NGAs.
______________ 7. The Purchase Request (PR) form is prepared when end users request for the issuance of items of
inventory that are available on stock.


______________ 8. If the beginning balance of inventory is P50, the net purchases are P100 and the cost of goods
sold is P30, the ending inventory must be P120.
For #9-10, refer to the below:

Entity _A, government entity, sells eggs. At the start of the period, Entity A's inventory consisted of
one (1) red egg with a carrying amount of P2. During the period, Entity A acquired one (1) brown
egg for P3 and one (1) blue egg for P4. Entity A sold the brown egg during the period.
______________ 9. Under the Specific identification cost formula, Entity A's cost of sale is P2.
______________ 10. If the eggs are ordinarily interchangeable, Entity A's cost of sale is P2.5, assuming the sale
occurred only after all the purchases were made.


1. Entity A, a government entity, purchases inventories. To record a purchase, Entity A would most likely
debit the (an)
a. Inventory account c. Expense account
b. Purchases account d. a or b
2. Entity A, a government hospital, acquires medicines to be sold in its pharmacy. Entity A would record the
medicines acquired as
a. Semi-Expendable Property
b. Inventory Held for Consumption
c. Inventory Held for Distribution
d. Inventory Held for Sale
3. Entity A, a government entity, purchases relief goods which are to be held on standby, ready to be
distributed when a calamity strikes. Entity A would most likely classify the goods purchased as
a. Inventory Held for Consumption c. Purchases
b. Inventory Held for Distribution d. None of these, only a note disclosure shall be made
4. According to the GAM for NGAs, this shall be used for large numbers of items of inventory that are
ordinarily interchangeable.
a. Specific identification
b. FIFO
c. Weighted average cost applied in a periodic inventory system
d. Weighted average cost applied in a perpetual inventory system
e. Any of these as a matter of accounting policy choice


5. This refers to the cost an entity would incur to acquire an asset on the reporting date.
a. Net realizable value c. Current replacement cost
b. Fair value d. Present value
6. Which of the following inventories of a government entity would be subsequently measured at the lower
of cost and current replacement cost?
a. Inventories of rice that are held for sale
b. Medicines being sold by a government-owned pharmacy
c. Books to be distributed to students in public schools
d. Forest products held for sale
7. Which of the following events or transactions would not lead to the recognition of the cost of inventory
as expense?
a. The inventory is written down
b. The inventory is distributed for free
c. The inventory is exchanged for dissimilar inventory
d. The inventory is consumed in the manufacturing process
8. The accounting division of a government entity uses this to record and monitor the movements and
balances of inventories.
a. Stock Card
b. Stock Ledger Card
c. Journal Entry
d. Special Journal
9. Which of the following statements correctly differentiates the Stock Card from the Stock Ledger Card?
a. The Stock Ledger Card is maintained by the Budget Division while the Stock Card is maintained by the
Accounting Division.
b. The Stock Card is subject to audit by the COA while the Stock Ledger Card is not.
c. The Stock Card shows quantities only while the Stock Ledger Card shows monetary balances only.
d. The Stock Card shows quantities only while the Stock Ledger Card shows quantities as well as monetary
amounts.
10. This document is prepared when end users request for the issuance of inventories that are available on
stock.
a. Purchase Requisition Form
b. Custodian Inventory Slip
c. Purchase Order
d. Requisition and Issue Slip
C. LESSON WRAP-UP
you finished.



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_______________________________________________________________.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1.
• Inventory Held for Sale (e.g., medicines for sale in government pharmacies)
• Inventory Held for Distribution (e.g., rice and other welfare goods held for distribution)
• Inventory Held for Manufacturing (e.g., raw materials, work- in-process)
• Inventory Held for Consumption (e.g., office supplies inventory)
• Semi-Expendable Property
2. Perpetual Inventory System
Activity 3
1. False. Depending on the classification, average cost for inventories which are ordinarily
inventories are subsequently measured using interchangeable.
lower of cost or net realizable value or lower of 5. False. Government entities used perpetual
cost or current replacement cost. inventory system.
2. False. Purchases of machinery, equipment, 6. False. Specific Identification is formula used for
furniture and fixtures and similar items below the items that that not ordinarily interchangeable.
P 15,000 capitalization threshold for PPE are These are unique items.
recorded as inventories. 7. False. Requisition and Issue Slip (RIS) is
3. True prepared to request for the issuance of items
4. False. Formulas used could be Specific available on stock.
Identification for unique items and weighted 8. True


9. False. Using the Specific Identification, the cost weighted average formula. Therefore, cost should
of brown egg should be P3. have been P3 computed as follows (P2 +P3
10. False When items are ordinarily +P4)/3.
interchangeable, government entities used the
Activity 5
1. A 6. C
2. D 7. D
3. B 8. B
4. D 9. D
5. C 10. C


Lesson Title: Agriculture Materials:

1. Differentiate between the following: biological assets, References:
agricultural produce, and inventory. Millan, Z. V. (2018). Government
2. State the initial and subsequent measurements of biological Accounting & Accounting for Non-
assets and agricultural produce. Profit Organizations.

Productivity Tip:
“The tragedy in life doesn’t lie in not reaching your goal. The tragedy lies in having no goal to reach.” - Benjamin
E. Mays
we will see how government entities account for biological assets and agricultural produce.

1. Differentiate biological assets and
agricultural produce.
2. What is an agricultural activity?
B. MAIN LESSON


Agriculture means farming or the process of producing crops and raising livestock. In this chapter, we will learn
the accounting principles used for assets, liabilities, income and expenses resulting from agricultural activities.
Agricultural Activity — is the management by an entity of the biological transformation and harvest of
biological assets for sale, including exchange or non-exchange transactions, or for conversion into agricultural
produce, or into additional biological assets.
Common Features of Agricultural Activities:

• Capability to change - living animals and plants are capable of biological transformation
• Management of change - management facilitates biological transformation by enhancing, or at least
stabilizing, conditions necessary for the process to take place. Such management distinguishes
agricultural activity from other activities.
• Measurement of change – the change in quality of quantity brought about by biological transformation
or harvest is measured and monitored as a routine management function.
Biological Transformation - comprises the following processes that cause qualitative or quantitative changes
in a biological asset:
• Asset changes through:
o Growth - increase in quantity or improvement in quality or improvement in quality of an animal
or plant.
o Procreation – the creation of additional living animals or plants.
o Degeneration – decrease in the quantity or deterioration in quality of an animal or plant.
• Production of agricultural produce.
Biological Asset – living animal or plant.
Agricultural Produce – the harvested product of the entity’s biological assets. Harvest is the detachment of
produce from a biological asset or the cessation of a biological asset’s life processes.
Recognition
A biological asset or agricultural produce is recognized when it meets the asset recognition criteria, including the
reliable measurement of its fair value or cost.
Measurement
Biological assets are initially and subsequently measured at fair value less costs to sell. The gain or loss arising
from initial measurement and subsequent changes in fair value less costs to sell are recognized in surplus or


deficit. Biological assets whose fair value cannot be reliably determined on initial recognition are initially
measured at cost and subsequently measured at cost less accumulated depreciation and accumulated impairment
losses.
Agricultural produce is initially measured at fair value less costs to sell at the point of harvest. This will be the
deemed cost when subsequently measuring the agricultural produce using the measurement basis for
inventories or another basis. The gain arising from the initial measurement is recognized in surplus or deficit.
• Cost to sell – are incremental costs directly attributable to the disposal of an asset, excluding finance costs
and income taxes.
Determination of Fair value

• Fair value – determined as follows:
Quoted price in an active market xx
Less: Transport costs (xx)
Fair value xx
Active Market – market when all of the following conditions exist:
(a.) the items traded in the market are homogenous.
(b.) willing buyers and sellers can normally be found at any time, and
(c.) prices are available to the public.
➢ If there are more than one active market, the entity shall use the price in the market expected to be
used.
➢ If there are no active market, the entity shall estimate the market price based on the following:
o The most recent market transaction price, provided that there is no significant change in
economic circumstances between the date of that transaction and the reporting date;
o Market prices for similar assets with adjustment to the reflect differences.
o Sector benchmarks, such as the value of an orchard expressed per export tray, bushel, or
hectare, and the value of cattle express pre kilogram meat; and
o Present value of expected net cash flows from the asset discounted at a current market-
determined rate, in circumstances where market-determined prices or values are not available
for a biological asset in its present condition.
Estimated cash flows exclude finance costs, taxes, and the costs of reestablishing biological
assets after harvest.
➢ Contract price are irrelevant when determining the fair value.
➢ Transport costs refer to all costs necessary in getting the asset to the market for sale.
• Determination of fair value may be facilitated by grouping biological assets or agricultural produce
according to significant attributes.
• Cost may sometimes approximate fair value, particularly when:
o Little biological transformation has taken place since initial cost incurrence.


o The impact of the biological transformation on price is not expected to be material.

• Biological asset attached to land may not have a separate market but active market may exist for the
combined assets as a package. In such case, the fair value of the raw land and the land improvements
may be deducted from the fair value of the combined assets to arrive at the fair value of biological assets.
• A biological asset that is previously measured at fair value less costs to sell shall be measured at fair value
less costs to sell until it is disposed.
Disclosures
• The aggregate gain or loss on initial recognition of biological assets and agricultural produce and from
the change in fair value less costs to sell of biological assets.
• Consumable and Bearer biological assets and biological assets held for sale and held for distribution at
no charge or for a nominal charge.
• Mature and immature biological assets.
• The amount of change in fair value less costs to sell due to physical changes and due to price changes.
True or False.
______________ 1. Living animals and plants are always accounted for as biological assets.
______________ 2. Biological assets are initially and subsequently measured at fair value less costs to sell.
______________ 3. Agricultural produce is measured at fair value less costs to sell only at the point of harvest.
______________ 4. An essential element of agricultural activity is the management of the biological transformation
of biological assets.
______________ 5. Entity A's dairy cattle gave birth to a calf. The fair value less costs to sell of the new born calf is
P 10,000. Entity A recognizes a gain of 10,000 from the initial recognition of the calf.
______________ 6. A loss can arise from the initial measurement of a biological asset.
______________ 7. Fair value is quoted price in an active market less transaction costs.
______________ 8. Entity A acquires a biological asset for P 100, equal to fair value, and incurs transaction cost of P
10 on the purchase If the asset's costs to sell is P 20, Entity A will recognize a loss of P 30 on the
initial recognition of the purchased asset.
______________ 9. Entity A recognizes a gain of P 100 from the change in FVLCS of its biological assets during the
period. If the change in FVLCS due to price change is P70, the change in FVLCS due to physical
change must be P40.
______________ 10. If there are more than one active markets for a biological asset, the entity shall use the price in
the market expected to be used when determining fair value.



1. According to the GAM for NGAs, a biological asset is
a. an animal or plant c. a living animal or plant
b. an asset used in farming d. a harvested product
2. The common features of agricultural activities include the following except
a. capability to change
b. management of change
c. measurement of change
d. wind of change
3. Which of the following is an agricultural produce?
a. carabao c. extra rice
b. harvested palay d. powdered milk
4. According to the GAM for NGAs, biological assets measured as follows:
Initial measurement Subsequent measurement
a. fair value less cost to sell fair value less cost to sell
b. cost cost less accumulated depreciation
c. cost cost less accumulated depreciation and
impairment losses
d. fair value less cost to sell cost
5. Which of the following are not considered costs to sell?
a. commissions to brokers
b. levies by regulatory agencies and commodity exchanges
c. transfer taxes and duties
d. transport costs
6. According to the GAM for NGAs, if there is no active market for a biological asset
a. the entity shall measure the biological asset at cost less accumulated depreciation.
b. the entity shall measure the biological asset at cost less accumulated depreciation and accumulated
impairment losses.
c. the entity shall use a contract price in determining the fair value.
d. the entity shall estimate the market price using the guidance set forth in the GAM for NGAs.
7. Agricultural produce after the point of harvest is accounted for as
a. Inventory
b. PPE
c. Prepaid assets


d. Investment property
8. The carrying amount of a group of biological assets of Entity A is P 100,000 before any year-end
adjustment. If the year-end fair value is P 120,000 while the year-end estimate of costs to sell is P 5,000,
which of the following statements is correct?
a. Entity A will recognize a gain of P 15,000 in surplus deficit.
b. Entity A will recognize a gain of P15,000 directly in equity.
c. Entity A will recognize a gain of P 10,000 in surplus or deficit
d. Entity A will recognize a gain of P 25,000 in surplus or deficit.
9. Which of the following need not to be disclosed in relation to be accounting for biological assets?
a. Consumable and bearer biological assets
b. Mature and immature biological assets
c. The amount of change in fair value less costs to sell due to physical changes and due to price changes
d. The gain or loss on initial recognition of agricultural produce separately from that biological assets
10. Entity A is determining the measurement of its biological assets at the end of the period. Entity A’s
biological assets consist of trees in a plantation forest. There is no separate active market for these trees.
However, Entity A was able to gather the following information:
• FVLCS of land, land improvements and trees as a package, P 10M
• FVLCS of land, P 8M
• FVLCS of land improvements, P 500,000
How much is the valuation of the trees in Entity A’s year-end statement of financial position?
a. P 10,000,000
b. P 2,000,000
c. P 1,500,000
d. P 1,000,000
C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

_______________________________________________________________.


______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1.
Biological Asset – living animal or plant
Agricultural Produce – the harvested product of the entity’s biological assets. Harvest is the detachment of
produce from a biological asset or the cessation of a biological asset’s life processes.
2. Agricultural Activity — is the management by an entity of the biological transformation and harvest of
biological assets for sale, including exchange or non-exchange transactions, or for conversion into agricultural
produce, or into additional biological assets.
Activity 3
1. True 7. True
2. True 8. False. No loss on initial recognition. Loss is
3. True measured on subsequent measurement.
4. True 9. False. The change due to physical change is P30
5. False (100 less 70).
6. True 10. True
Activity 5
1. C 6. C
2. D 7. A
3. B 8. A
4. A 9. D
5. D 10. C

Lesson Title: Investment Property Materials:

1. Define investment property and give examples. References:
2. State the initial and subsequent measurements of an Millan, Z. V. (2018). Government
investment property. Accounting & Accounting for Non-
3. Account for the impairment of investment property, and the Profit Organizations.
reversal thereof.
Productivity Tip:
“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month
by getting nine women pregnant.” - Warren Buffett
we will see how government entities account for Investment Properties.

1. What is an Investment Property?
2. What constitutes a derecognition of

an Investment Property?

B. MAIN LESSON
Investment Property — is land and/or building held for rentals or capital appreciation. It is not held for use in
the production or supply of goods or services, for administrative purposes, or sale in the ordinary course of
business.
Examples of investment property:

 Land held for long-term capital appreciation rather than for short-term sale in the ordinary course of
operations.
 Land held for a currently undetermined future use.
 A building owned by the entity (or held by the entity under a finance lease) and leased out under one or
more operating leases on a commercial basis.
 A building that is vacant but is held to be leased out under one or more operating leases on a commercial
basis to external parties.
 Property that is being constructed or developed for future use as investment property.
 Significant portion of a property that is held to earn rentals or for capital appreciation rather than to
provide services, and insignificant portion that is held for use in the production or supply of goods or
services or for administrative purposes.
Initial Measurement
Investment Property is initially measured at cost. The measurement of cost depends on the mode of acquisition.
Modes of Acquisition
 Cash Purchase – the cost of an investment property acquired through cash purchase comprises the
purchase price and any direct costs necessary in bringing the asset to its intended condition.
 Installment Purchase – the cost of an investment property acquired through installment purchase is the
cash price equivalent.
 Non-exchange transaction – the cost of an investment property acquired through a non-exchange
transaction is the fair value at the acquisition date.
 Self-construction – the cost of a self-constructed investment property includes the costs of direct
materials, labor and construction overhead.
Subsequent Measurement
Investment properties are subsequently measured under the cost model.

Transfers To or From Investment Property

Transfers to or from investment property shall be made only when there is a change in use, as evidenced by the
following:
 Commencement of owner-occupation, for a transfer from investment property to owner-occupied
property.
 End of owner-occupation, for a transfer from owner-occupied property to investment property.
 Commencement of an operating lease (on a commercial basis) to another party, for a transfer from
inventories to investment property.
 Commencement of development with a view to sale, for a transfer from investment property to
inventories.
Derecognition
An investment property is derecognized when it is disposed or when it is permanently withdrawn from use and
no future economic benefits or service potential is expected from its disposal. When an investment property is
derecognized, the difference between the net disposal proceeds (if any) and it’s carrying amount is recognized
as gain or loss in surplus or deficit.
Impairment
An asset is impaired if its carrying amount exceeds its recoverable amount. The excess represents impairment
loss which shall be recognized in surplus or deficit.
 Recoverable amount is the higher of an asset's fair value less costs to sell and value in use.
 Value in use is the present value of the estimated future cash flows expected to be derived from the
continuing use of an asset and from its disposal at the end of its useful life.
Cash Generating Unit

If there is an indication for impairment, recoverable amount is determined for an individual asset, except when
this is not possible, in which case the recoverable amount of the cash generating unit where the individual asset
belongs is determined.
Cash Generating Unit (CGU) is the smallest identifiable group of assets held with the primary objective of
generating a commercial return that generates cash inflows from continuing use that are largely independent of
the cash inflows from other assets or groups of assets.
Reversal of Impairment
An entity shall assess whether there is any indication that an impairment loss recognized in prior periods for an
asset may no longer exist or may have decreased. If such indication exists, the entity shall estimate the

recoverable amount of that asset.
True or False.
______________ 1. An entity shall capitalize as part of the cost of an investment property the operating losses
incurred before the investment property achieves the planned level of occupancy.
______________ 2. According to the GAM for NGAs, government entities may choose to use either the cost model
or the fair value model to subsequently measure investment properties.
______________ 3. According to the GAM for NGAs, an entity shall not depreciate an asset while it is classified as
investment property.
______________ 4. Recoverable amount is the lower of an asset's fair value, less costs to sell and value in use.
______________ 5. If an asset's recoverable amount exceeds its carrying amount, the asset is impaired.
______________ 6. An investment property with carrying amount Of P10 is determined to have a fair value less costs
to sell of P7 and a value in use of P8. The impairment loss is P3.
______________ 7. An investment property with carrying amount of P10 is sold for P7. Transaction costs on the sale
amounted to P1. The loss on derecognition is P4.
______________ 8. An investment property that was previously impaired is determined to have a new recoverable
amount of P10. Right now, the asset's carrying amount is 97. However, if no impairment loss had
been recognized in the prior year the asset would have a carrying amount of P9 by now. The
gain on reversal of impairment, therefore, is P1.
______________ 9. According to the GAM for NGAs, a government entity shall, at each reporting date, determine
the recoverable amount of an investment property and compare it with its carrying amount.
______________ 10. An entity need not compute for the value in use of an asset if the entity has no reason to believe
that the value in use exceeds the fair value less costs to sell.


1. Which of the following is considered an investment property?
a. Owner-occupied property awaiting disposal
b. Property that is leased to another entity under a finance lease
c. Property held for use in the production or supply of goods or services or for administrative purposes.

d. A building held by the entity under a finance lease and leased out under one or more operating leases
on a commercial basis.
2. Which of the following would not be reported as investment property?
a. Property owned by the entity and leased out under one or more operating leases.
b. Property held by the entity to be leased out under one or more operating leases
c. Real estate held with an undetermined future use
d. Property owned by the entity and leased out to another entity under a finance lease
3. Which of the following costs may properly be included in the carrying amount of an investment property?
a. Start-up costs, such as opening costs
b. Operating losses incurred before the investment property achieves the planned level of occupancy
c. Abnormal amounts of wasted materials, labor or other resources incurred in constructing or developing
the property.
d. Accrued taxes prior to acquisition assumes an obligation to pay.
4. Entity A, a government entity, acquires a building to be leased out under various operating leases on
commercial basis. Entity A incurs the following costs on the acquisition:
Purchase Price P 10,000,000
Legal services and transfer taxes 10,000
Refurbishment before occupancy 30,000
Occupancy permit fees 25,000
Property taxes after occupancy 8,000
Opening costs (blessing and feng shui) 500,00
The entry to initially recognize the investment property in Entity A’s books of accounts is:
a. Investment Property, Land 10,650,000
Cash-Modified Disbursement System (MDS), Regular 10,650,000
b. Investment Property, Land 10,565,000
c. Investment Property, Land 10,010,000
d. Investment Property, Land 10,040,000
5. During the period, Entity A, a government entity, decides to use as an office one of its buildings that has
previously been leased out under various operating leases on commercial basis. Information on the
property is as follows:
Investment property – Building P 1,000,000
Accumulated Depreciation 800,000

At the date of change in use, the fair value of the investment property is P 250,000. How much is the gain
(loss) on the transfer?
a. P 50,000
b. P (50,000)
c. P 0
d. A transfer is prohibited.
6. On January 1, 20x1, Entity A acquires a building to be held as investment property for a total cost of P
1,500,000. The building is estimated to have a 30-year useful life and a 5% residual value. Entity A uses
the straight-line method of depreciation. On December 31, 20x5, Entity A sells the building for P
1,300,000. How much is gain (loss) on the sale?
a. P 35,700
b. P 37,500
c. P 53,700
d. P 75,300
Use the following information for the next three questions:
Entity A determines an indication that its investment property might be impaired. Entity A then gathers the
following information:
Carrying amount of investment property P 1,000,000
Fair value less costs to sell 900,000
Value in use 880,000
Following the impairment, Entity A revises its estimate of residual value to 5% of the recoverable amount and
the remaining useful life to 10 years.
7. How much is the impairment loss?
a. P 120,000
b. P 20,000
c. P 100,000
d. P 0
8. How much is the annual depreciation after impairment?
a. P 85,500
b. P 90,000
c. P 85,000
d. P 95,000
9. Five years after the impairment, Entity A determines an indication that the impairment may no longer
exist. Entity A makes the following estimates and computation:
Fair value less costs to sell P 800,000

Value in use 750,000
The investment property would have a carrying amount of P 600,000 by now if no impairment loss had
been recognized in the past. How much is the gain on the reversal of impairment?
a. P 125,000
b. P 129,500
c. P 127,500
d. P 327,500
10. During the period, one of the buildings of Entity A, a government entity, was completely destroyed by
fire. The building has a historical cost of P 1,000,000 and an accumulated depreciation of P400,000. The
building is insured for P 700,000. Which of the following statements is correct?
a. Entity A reports a net gain of P 300,000 from the event in its year-end financial statements.
b. Entity A reports a net gain of P 100,000 from the event in its year-end financial statements.
c. Entity A recognizes a loss of P 600,000 but no gain.
d. Entity A shall treat the loss event and the insurance claim as separate events.
C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

_______________________________________________________________.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________

KEY TO CORRECTIONS
Activity 1 and 4.
1.
Investment Property — is land and/or building held for rentals or capital appreciation. It is not held for use in
the production or supply of goods or services, for administrative purposes, or sale in the ordinary course of
business.
2. Derecognition occurs when investment property is disposed or when it is permanently withdrawn from use
and no future economic benefits or service potential is expected from its disposal
Activity 3
1. False. The cost of investment property excludes carrying amount exceeds its recoverable amount.
operating losses incurred before it achieves the 6. False. The impairment loss is P2. Recoverable
planned level of occupancy. amount is higher between FV less cost to sell and
2. False. Investment properties are subsequently value in use. (P10 less P8).
measured under the cost model. Fair value 7. True
during subsequent measurement is not allowed 8. True
for government entities. 9. False. Before the estimation of recoverable
3. False. Under the cost model, investment amount, at each reporting date, an entity shall
properties are measured at cost less accumulated assess whether there is an indication that an asset
depreciation and accumulated impairment losses. maybe impaired.
4. True 10. True.
5. False. Impairment occurs when an asset’s
Activity 5
1. C 6. B
2. D 7. C
3. A 8. A
4. D 9. C
5. A 10. B

Lesson Title: Property, Plant and Equipment Materials:

1. State the initial and subsequent measurements of items of PPE References:
of government entities. Millan, Z. V. (2018). Government
2. Describe the following and state their peculiar accounting Accounting & Accounting for Non-
requirements: Heritage Assets, Infrastructure Assets, and Profit Organizations.
Reforestation Projects.
3. Account for Borrowing Costs by a government entity. Punzalan, A. & Cardona, M (2014).
Productivity Tip:
“It’s not that I’m so smart, it’s just that I stay with problems longer.” - Albert Einstein
we will see how government entities account for Property, Plant and Equipment.

1. Define Heritage Assets, Infrastructure
Assets and Reforestation Assets.
2. How is Borrowing Cost accounted for

by government entities?

B. MAIN LESSON
Property, Plant and Equipment are:
 tangible assets
 held for use in the production or supply of goods, services or program outputs, for rental to others, or
for administrative purposes, and not intended for resale in the ordinary course of operations
 expected to be used for more than one reporting period
Recognition
An item of PPE is recognized if it meets the definition of a PPE and the recognition criteria for assets, as well as
the capitalization threshold of P 15,000.
Initial Measurement
PPE are initially measured at cost. The initial cost comprises the following:
 Purchase price, including import duties and non-refundable purchase taxes, after deducting trade
discounts and rebates.
 Direct costs of bringing the asset to the location and condition necessary for it to be capable of operating
in manner intended by management.
 Present value of Decommissioning and Restoration costs. Decommissioning costs refer to the costs of
dismantling or uninstalling a PPE at the end of its useful life. Restoration costs refer to the cost of restoring
the site where the PPE is previously installed. The present value of these estimated costs are capitalized
as cost of the P PE, with a corresponding credit to a liability account (i.e., 'Other Provisions').
Modes of Acquisition
 Acquisition by Purchase - acquisitions of PPE through purchase are classified as Capital Outlays (CO) in
the budget registries.
 Acquisition by Construction – acquisitions of PPE through construction are also classified as Capital Outlays
(CO) in the budget registries. Construction costs incurred are initially recorded in the “Construction in
Progress” account pending the completion of the asset. Upon completion, the construction costs are
reclassified to the appropriate PPE account.
 Acquisition through Exchange – the measurement of the asset acquired depends on whether the exchange
transaction has commercial substance or not.
o With Commercial Substance – exchange has commercial substance if the subsequent cash flows
of the entity change as a result of the exchange. The asset received is measured using the
following order of priority:
1. Fair value of assets Given Up (plus any cash paid or minus any cash received);

2. Fair value of asset Received; or

3. Carrying amount of asset Given up (plus any cash paid or minus any cash received)
o Lacks Commercial Substance – The asset received is measured at the:
1. Carrying amount of asset Given up (plus any cash paid or minus any cash received)
 Acquisition through Non-Exchange Transaction – The asset acquired in a non-exchange transaction is
initially measured at its fair value at acquisition date. Those received without condition are recognized
immediately as income. Those with condition are initially recognized as liability and subsequently
recognized as income when condition is met.
 Acquisition through Intra-agency or Inter-agency Transfers – The asset acquired from either intra or inter-
agency transfer is measured at the carrying amount of the asset received.
o Intra-agency transfers are transfers within the same agency.
o Inter-agency transfers are transfers between different agencies.
 Acquisition through Finance Lease
Subsequent Expenditures on recognized PPE

Capitalization of costs ceases when the PPE is in the location and condition necessary for it to be capable of
operating in the manner intended by management. Therefore, costs incurred in using or redeploying a PPE are
not capitalized. As a general rule, subsequent expenditures on recognized PPE are expensed.
Guidelines when accounting for subsequent expenditures on recognized PPE:

 Repairs and Maintenance
o Minor repairs – expensed
o Major repairs – considered as betterments, capitalized
 Replacement Costs – capitalized
 Spare parts and servicing equipment
o Minor spare parts – expensed
o Major spare parts – recognized as PPE when they meet the recognition criteria
 Betterments – capitalized
 Additions – modifications which increase the physical size or function of the PPE
o New unit – depreciated over its own useful life
o Expansion – depreciated over the shorter of remaining life of PPE or useful life of expansion
 Rearrangements – relocation or reinstallation of an asset, capitalized
PPE are subsequently measured using the cost model. Under this model, an item of PPE is measured at its cost
less any accumulated depreciation and any accumulated impairment losses.

Guidelines in Depreciating items of PPE:

a. The three factors considered when determining depreciation are: initial cost, useful life, and residual value.
b. All items of PPE shall be depreciated, except land and heritage assets.
c. Depreciation begins when the asset is available for its intended use. For simplicity, if PPE becomes
available for its intended use:
i. On or before the 15th of the month, depreciation is computed at the beginning of that month.
ii. After the 15th of the month, depreciation is computed at the beginning of the following month.
d. Depreciation ceases when the asset is derecognized or fully depreciated. Depreciation does not cease
when the asset becomes idle or retired from active use and held for disposal.
e. The straight-line method of depreciation shall be used unless another method is more appropriate. That
method is applied consistently from period to period unless there is a change in the expected pattern of
consumption of those future economic benefits or service potential.
f. The estimation of useful life is a matter of judgement, based on the entity’s experience with similar assets.
g. Residual value shall be at least 5% of cost, unless an entity determines a more appropriate estimate,
subject to the approval of COA.
h. The residual value and the useful life of an assets shall be reviewed at least at each annual reporting date
and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in
accounting estimate.
i. Depreciation shall be recognized on a monthly basis.
Impairment
A PPE is impaired if its carrying amount exceeds its recoverable service amount or recoverable amount. At each
reporting date, an entity shall assess whether there is an indication that an asset may be impaired. Following
indications of impairment shall be considered:
a. External sources
a. Cessation, or near cessation, of the demand for services provided by the assets.
b. Significant long-term changes with an adverse effect on the entity have taken place during the
period, or will take place in the near future, in the technological, legal, or government policy
environment in which the entity operates.
b. Internal sources
a. Physical damage of an asset
b. Expected changes in the expected use of an asset that adversely affect its recoverable amount.
c. Cessation of the construction of an asset before it is completed.
d. Indications that the service performance of an asset is, or will be, significantly worse than expected.
Computation of Value in Use

 Value in use of a cash generating asset – the present value of the estimated future cash flows expected to
be derived from the continuing use of an asset and from its disposal at the end of its useful life.
 Value in use of a non-cash generating asset – the present value of the asset’s remaining service potential.
Value in use can be computed using the following methods:
a. Depreciated Replacement Cost Approach – value in use is equal to the asset’s replacement cost adjusted
for depreciation to reflect the asset’s used condition.
b. Resolution Cost Approach – value in use is equal to the asset’s depreciated replacement cost or
deprecated reproduction cost minus estimated restoration cost.
c. Service Units Approach – value in use is equal to the asset’s depreciated replacement cost or depreciated
reproduction cost minus a proportionate reduction to reflect the reduced number of service units
expected from the asset in its impaired state.
Heritage Assets – those which have historical, cultural and environmental significance, and are intended to be
preserved for future generations.
 Measured at cost
 Not depreciated, but subject to impairment
 Heritage assets that have future economic benefits or service potential other than their heritage value are
depreciated similar to the other items of PPE.
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
 Accounted for similar to other items in PPE
Reforestation Projects – renewal of a forest cover by planting seeds or young trees.

 Recorded as land improvements in the books of accounts of DENR or other entity concerned
 Not depreciated but subject to impairment
Derecognition
The carrying amount of a PPE is derecognized when it is disposed or when no future economic benefits or service
potential is expected from the asset.
Receipt and Disposition PPE

The procedures in the receipt and disposition of PPE are similar to those of inventories (see discussion in Chapter

7). Only those that are peculiar to PPE are discussed below:
 Property Card — used by the Supply/Property Division to record all movements in items of P PE. It is
maintained for each class of PPE. This is the equivalent of the Stock Card used for inventories.
 Property, Plant and Equipment Ledger Card — used by the Accounting Division to record all movements
in items of PPE, both in quantity and monetary amount. It also shows the estimated life, depreciation,
impairment and other information on the P PE. This is the equivalent of the Stock Ledger Card used for
inventories.
 Property Acknowledgement Receipt - used by the Supply/Property Division to record the issuance of PPE
to the end user. This is based on the approved Requisition and Issue Slip (RIS) submitted by the requesting
individual. The PAR is renewed every after 3 years or whenever there is a change in custodianship. This is
the equivalent of the Report of Supplies and Materials Issued used for inventories.
 Report on the Physical Count of Property, Plant and Equipment - At the end of each year, the entity shall
perform a physical count of P PE and prepare this report. This report shall be submitted to the COA not
later than January 31 of the following year.
 Inventory and Inspection Report for Unserviceable Property - used to account for all unserviceable property
subject to disposal. It is the basis for derecognizing the unserviceable properties in the books of accounts.
 Report of Lost, Stolen, Damaged or Destroyed Property - used by the accountable officer to notify the
concerned officials of the lost, stolen, damaged or destroyed property.
 Property Transfer Report — used to record transfers of property from one accountable officer to another.
Borrowing costs - are interest and other expenses incurred by an entity in connection with the borrowing of
funds. (PPSAS 55)
Commencement, Suspension and Cessation of Capitalization

The capitalization of borrowing costs as part of the cost of a qualifying asset shall (be):
 Commence when outlays for the asset are being incurred, borrowing costs are being incurred, and
activities that are necessary to prepare the asset for its intended use or sale are in progress.
 Suspended during extended periods in which active development is interrupted, and expensed.
 Cease when the qualifying asset is substantially complete. If completed in parts, capitalization of
borrowing costs ceases as each part is completed; capitalization continues for the uncompleted parts.
True or False.
______________ 1. The capitalization threshold for items of PPE by government entities is which is equal to the petty
cash disbursement limit.
______________ 2. Individual items of PPE with values below the capitalization threshold but work together as a

group are recognized as if the total cost of the group meets the capitalization threshold.
______________ 3. Items below the capitalization threshold of PPE are recognized as Semi-Expendable Property - a
separate class of PPE.
______________ 4. According to the GAM for NGAs, trade discounts are excluded from the initial measurement of
items of PPE but cash discounts.
______________ 5. The provision for decommissioning and restoration costs of item of PPE is subsequently
measured at amortized cost.
______________ 6. According to the GAM for NGAs, government entities may choose either the cost model or the
revaluation model to subsequently measure their PPE.
______________ 7. Government entities record depreciation on a monthly basis.
______________ 8. An item of PPE with historical cost of P10, accumulated depreciation of P5 and accumulated
impairment losses of P1 is sold for P7. The gain on the sale is P2.
______________ 9. Heritage assets are measured at cost. However, they are not subsequently depreciated, but
subject to impairment.
______________ 10. Infrastructure assets are accounted for in the same manner as the other items of PPE. However,
infrastructure assets are generally assigned a residual value of zero.


1. Entity A acquires an equipment for P 1M. The equipment is acquired not for active use in the production
of goods but rather as a standby equipment that will only be used if the main equipment needs to be
repaired. Does this equipment qualify for recognition as property, plant and equipment?
a. Yes, all of the recognition criteria for a PPE are met.
b. No. The equipment does not satisfy all the recognition criteria for a PPE.
c. No. Although, the equipment satisfies some of the recognition criteria for a PPE, it does not satisfy all.
The equipment shall be classified as “Other Assets.”
d. Yes and No. During the periods the equipment is idle, it shall be classified as “Other Assets.” During
the periods the equipment is in active use, it shall be classified as “PPE.”
2. For government entities, the capitalization threshold for PPE is
a. P 15,000 or more
b. more than P 15,000
c. not less than P 25,000

d. at least P 5,000
3. According to the GAM for NGAs, cash discounts not taken on purchases of items of PPE are
a. included in the cost of PPE
b. recognized as “Other Losses”
c. ignored
d. debited to Purchase Discount Lost account
4. According to the GAM for NGAs, estimates of decommissioning and restoration costs of an item of PPE
are (choose the incorrect statement)
a. included in the initial cost of the item of PPE at the present value of the statements
b. credited to the “Other Provisions” account at their present value
c. included in the initial cost of an item of PPE but not subject to subsequent depreciation, although
subject to amortization using the effective interest method
d. are recognized as provisions, at present value, and subsequently measured similar to a financial liability
5. Which of the following costs is not added to the cost of an item of PPE?
a. cost of site preparation
b. Initial delivery and handling costs
c. Net disposal proceeds of samples generated during testing
d. Employee benefits arising directly from the acquisition of PPE
6. Entity A acquires 5 motor vehicles for a package price of P 10M. In conjunction with the purchase, the
supplier provides Entity A a promotional item of 1 motor vehicle which is not of the same type as these
acquired. The fair value to motor vehicle is P 2M. Which of the following statements is correct?
a. For individual costing purposes, the cost of each of the 5 motor vehicles is P 1,600,000
b. For individual costing purposes, the cost of each of the 5 motor vehicles is P 1,666,667
c. The promotional item is recognized as gain equal to fair value
d. a and c
7. Entity A acquires a building through self-construction (construction by administration). The initial cost of
the building will most likely be based on which of the following?
a. The contract price
b. The cost of direct materials, direct labor, and construction overhead, excluding wastages.
c. a or b
d. Fair value at acquisition date.
8. Entity A acquires a building through self-construction (construction by administration). The construction
costs incurred are
a. initially recorded in the Registries and recorded in the books of accounts only upon completion of the
construction
b. initially recorded in the “Construction in Progress” account

c. recorded in the “Buildings” account in the period they arise.

d. initially recorded as “Receivables” during the construction period
9. Entity A, a government entity, acquires an equipment for P 1M on August 6, 20x1. The equipment’s
estimated useful life is 5 years. How much is the carrying amount of the equipment on December 31,
20x1?
a. P 920,833
b. P 936,667
c. P 916,667
d. P 979,167
10. Which of the following assets would most likely not be assigned a residual value by a government entity?
a. a major part of an equipment
b. a building held as investment property
c. a major tool
d. Infrastructure asset
C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

_______________________________________________________________.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________

KEY TO CORRECTIONS
Activity 1 and 4.
1.
Heritage Assets – those which have historical, cultural and environmental significance, and are intended to be
preserved for future generations.
Infrastructure Assets – includes road networks, flood control, sewer, water and power supply systems,
communications networks, railways, seaports, airports, and the like.
Reforestation Projects – renewal of a forest cover by planting seeds or young trees.
Activity 3
1. False. PPE if it meets the recognition criteria of PPE and within P15,000 threshold.
2. True
3. False. If below the P15,000 threshold, they are recognized as inventories example is the Semi-Expendable
Property.
4. True
5. True
6. False. Cost model is used for the subsequent measurement of PPE.
7. True
8. True
9. True
10. True
11. True
12. True
13.False. There is neither gain nor loss. For exchange with commercial substance, first priority if Fair vale of
Asset Given Up plus any cash paid.
14. True
15. False. For government entities, the residual value is generally 10% of cost.

Activity 5
1. A 6. A 11. A
2. A 7. B 12. B
3. A 8. B 13. D
4. C 9. C 14. C
5. D 10. D 15. D

Lesson Title: Intangible Assets Materials:

1. Define intangible assets. References:
2. State the recognition, and account for the initial and Millan, Z. V. (2018). Government
subsequent measurements, of intangible assets. Accounting & Accounting for Non-

Productivity Tip:
“You can fool everyone else, but you can’t fool your own mind.” - David Allen
we will see how government entities account for Intangible Assets.

1. Give the essential elements of
Intangible Assets
2. What is the subsequent

measurement of Intangible Assets with
Finite life?

B. MAIN LESSON
Intangible Assets - identifiable non-monetary assets without physical substance.
Essential Elements of an Intangible Asset

• Identifiability — an intangible asset is identifiable when it:
o is separable
o arises from binding arrangements including contractual or other legal rights, regardless of
whether those rights are transferable or separable from the entity or from other rights and
obligations.
• Control - the entity has the ability to benefit from the intangible asset or prevent others from benefitting
from it.
• Future economic benefits or service potential – this may include revenue from the sale of products or
services, cost of savings, or other benefits resulting from the use on the asset by the entity.
Recognition
An intangible asset is recognized if it meets the definition of an intangible asset and the recognition criteria for
assets.
Initial Measurement
An intangible asset is initially measured at cost. The measurement of cost depends on the mode of acquisition.
Mode of Acquisition
a. Purchase – Purchase Price plus Direct Costs
• If payment is deferred, the cost is the cash price equivalent
b. Non-exchange transaction – fair value at the acquisition date.
c. Exchange
a. With commercial substance (order of priority)
i. FV of asset given up (plus cash paid/minus cash received)
ii. FV of asset received
iii. CA of asset given up (plus cash paid/minus cash received)
b. Without commercial substance:
i. CA of asset given up (plus cash paid/minus cash received)
d. Entity Combination – fair value at the acquisition date.
Internal Generation — to assess whether an internally generated intangible asset meets the criteria for

recognition, an entity classifies the generation of the asset into: (a) research phase; and (b) development phase.
Research – is original and planned investigation undertaken with the prospect of gaining new specific and
technical knowledge and understanding. Expenditures during the research phase are recognized as expense.
Development – is the application of research findings or other knowledge to a plan or design for the production
of new or substantially improved materials, devices, products, processes, systems, or services before the start of
commercial production or use.
Expenditures during the development phase are capitalized if the entity can demonstrate all of the following:
• Technical feasibility of completing the intangible asset.
• Intention to complete the intangible asset.
• Ability to use or sell the intangible asset.
• Probable future economic benefits or service potential.
• Availability of adequate resources needed to complete the development and to use or sell the
intangible asset.
• Reliable measurement of the cost of the intangible asset.
If it is not clear whether an expenditure is research or a development, it shall be treated as research cost.
Expenses already charged as expenses ca not be subsequently capitalized.
Internally generated brands, mastheads, publishing titles, customers list, and similar items shall not be
recognized as intangible assets.
Selling, administrative and other general overhead cost, costs of inefficiencies, initial operating losses,
and training costs are expenses and shall not form part of the cost of an intangible asset.
Subsequent expenditures on recognized intangible assets are generally expensed, unless they meet the
definition of intangible asset and asset recognition criteria.
The accounting for the replacement of a part of intangible asset is the same as those PPE and investment
property.
An intangible asset is subsequently measured at cost less any accumulated amortization and any accumulated
impairment losses.
• Indefinite life – intangible assets with indefinite life are not amortized but tested for impairment at least
annually
• Finite life – intangible assets with finite useful life are amortized using the straight line method over a
period of 2 to 10 years. The residual value is assumed to be zero except when there is a third party
commitment to purchase the asset at the end of its useful life or there is an active market where the entity

expects to sell the asset at the end of its useful life.
Impairment
The test for impairment will depend on the life of the intangible assets.
• Intangible asset with indefinite useful life – at least annually or whenever there is an indication of
impairment.
• Intangible asset not yet available for use - at least annually or whenever there is an indication of
impairment.
• Intangible asset with definite useful life – only when indication of impairment exist. Assessment will be at
each reporting date.
Derecognition
An intangible asset is derecognized when it is disposed or when no economic benefits or service potential is
expected from the asset.
True or False.
______________ 1. If it is not clear whether an expenditure is a research or a development cost, it is treated as
development cost.
______________ 2. The development costs of an internally generate intangible asset may be capitalized if certain
conditions are met.
______________ 3. A government entity does not amortize intangible assets.
______________ 4. Government entities amortize all of their intangible assets over a period of 2 to 10 years, unless
a more appropriate estimate of useful life is available.
______________ 5. For subsequent measurement, government entities classify intangible assets into those with finite
and indefinite useful lives, similar to business entities.
______________ 6. Government entities normally assign their intangible assets a residual value of 5% of cost.
______________ 7. Subsequent expenditures on recognized intangible assets are generally expensed unless it is
clear that the expenditures meet the recognition criteria for intangible assets.
______________ 8. A government entity acquires an intangible asset with indefinite useful life for P 100. Assuming
the entity uses the maximum amortization period for intangible assets under the GAM for NGAs,
the appropriate annual amortization expense on the intangible asset is P 10.
______________ 9. The amortization of an intangible asset is credited directly to the intangible asset account,
according to the GAM for NGAs.
______________ 10. An entity determines an indication of impairment for its intangible asset with carrying amount

of P 100. The entity calculates a fair value less costs to sell of P 90 and a value in use of P 105.
The impairment loss is P 5.


1. In which of the following instances is an asset not considered to be identifiable?
a. The asset can be sold separately regardless of whether the entity intends to do so
b. The asset arises from a contractual right.
c. The asset can be leased out separately on its own or licensed to be used separately by other entities in
exchange for cash payments
d. The asset can only be transferred if the entity is liquidated.
2. Which of the following is most likely to be recognized as intangible asset by a government entity?
a. Internally generated brand
b. Subsequent expenditure on a copyright
c. Development costs incurred in internally generating a patent
d. Publishing title acquired as a donation
3. Subsequent expenditures on recognized intangible assets are
a. included in the cost of PPE
b. recognized as “Other Losses”
c. ignored
d. debited to Purchase Discount Lost account
4. According to the GAM for NGAs, the government entities shall use this measurement model in
subsequently measuring intangible assets
a. cost model
b. Revaluation model
c. fair value model
d. a or b
5. Intangible assets held by government entities are measured as follows:
Initial Subsequent
a. Cost Cost less accumulated amortization and impairment losses
b. Cost Fair value less accumulated amortization and impairment losses
c. Cost Fair value through surplus or deficit

d. a or b
6. The default amortization method for intangible assets with finite useful life is
a. straight line method
b. sum-of-the-years digits
c. double declining
d. none of these
7. Which of the following statements is incorrect regarding the accounting for impairment of intangible
assets under GAM for NGAs?
a. An entity is required to test for impairment in intangible assets with indefinite useful life or an intangible
asset not yet available for use at least annually or whenever there is an indication of impairment.
b. An entity shall test for impairment an intangible asset with definite useful life only when an indication
of impairment exists.
c. The accounting for impairment of intangible assets, and reversal thereof, is the same as those of
investment property and PPE.
d. Intangible assets are subject to amortization using the straight line method over a period of 2 to 10
years but are not subject to impairment.
8. Which of the following is not one of the essential elements of an intangible asset?
a. Separability
b. Arising from binding arrangement
c. Control
d. Held for use in the production or supply of goods
9. An intangible asset is identifiable if it
a. is separable
b. arises from binding arrangements
c. is a non-monetary asset without physical substance
d. a or b
10. Which of the following is most likely not an intangible asset?
a. Computer
b. Trademark
c. Acquired import quota
d. Customer list
C. LESSON WRAP-UP
you finished.


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______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1. Essential Elements of Intangible assets are as follows:
• Identifiability
• Control
• Future economic benefits is expected to flow
2. Subsequent measurement of intangible asset with finite life are amortized using the straight-line method over
a period of 2 to 10 years. The residual value is assumed to be zero except when there is a third-party commitment
to purchase the asset at the end of its useful life or there is an active market where the entity expects to sell the
asset at the end of its useful life.
Activity 3
1. False. If not clear whether research or 4. False. It shall only be amortized over 2 to 10
development cost, it is treated as research cost as years.
expense. 5. True
2. False. Development costs are capitalized if all 6. False. Government entities assumed zero
the recognition criteria are met. residual value for intangible assets.
3. False. Intangible asset with finite useful life are 7. True.
amortized using straight-line method. 8. True

9. False. It is credited to Amortization – Intangible 10. False. Impairment loss is P10.

Asset.
Activity 5
1. D 6. A
2. C 7. D
3. B 8. D
4. C 9. D
5. A 10.D

Lesson Title: Liabilities Materials:

1. State the recognition criteria for liabilities References:
2. State the measurement of provisions, contingent liabilities and Millan, Z. V. (2018). Government
contingent assets. Accounting & Accounting for Non-

Productivity Tip:
“Sometimes, things may not go your way, but the effort should be there every single night.” - Michael
Jordan
we will see how government entities account for Liabilities.

1. What is a contingent liability?
2. How are financial liabilities initially

and subsequently measured?

B. MAIN LESSON
Liability – is a present obligation arising from past event, the settlement of which is expected to result in an
outflow of resources embodying economic benefits or service potential.
Obligating event is an event that creates either:
• Legal Obligation – results from contract, legislation, or other operation of law.
• Contractual Obligation – results from an entity’s actions that create a valid expectation from others
that the entity will accept and discharge certain responsibilities.
Recognition Criteria
A liability is recognized only when all the following are met:
• The item meets the definition of a liability
• It is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation
• The obligation has a cost or value that can be measured reliably
Financial Liabilities
• A contractual obligation to deliver cash or another financial asset to another entity.
• A contractual obligation to exchange financial assets or financial liabilities with another entity under
conditions that are potentially unfavorable to the entity.
• A contract that will or may be settled in the entity’s own equity instruments.
Initial Recognition
A financial liability is recognized when an entity becomes a party to the contractual provisions of the instrument.
Initial Measurement
Financial liabilities are initially measured at fair value less transaction costs, except for financial liabilities at fair
value through surplus or deficit whose transaction costs are expensed.
Transaction costs- are incremental costs that are directly attributable to the acquisition, issue, or disposal
of a financial instruments.
Financial liabilities are subsequently measured at amortized cost, except for financial liabilities at fair value
through surplus or deficit which are subsequently measured at fair value.
Derecognition

A financial liability is derecognized when it is extinguished, such as when it is discharged, waived, cancelled, or it
expires.
Provision – a liability of uncertain timing or amount. It is measured at the entity’s best estimate of the amount
needed to settle the liability at the reporting date. Provision is recognized only when all the recognition criteria
for liability are met.
Contingent liability - is recognized when one or more of the recognition criteria of liability are not met.
➢ A possible obligation that arises from past events, and whose existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future events not
wholly within the control of the entity.
➢ A present obligation that arises from past events, but is not recognized because:
o It is not probable that an outflow of resources embodying economic benefits or
service potential will be required to settle the obligation.
o The amount of the obligation cannot be measured with sufficient reliability.
Contingent Asset – is a possible asset that arises from past events, and whose existence will be confirmed only
by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the
entity.
Contingent Probable Possible Remote
• Liability Recognize and Disclose Disclose only Ignore
• Asset Disclose only Ignore Ignore
Measurement
1. A provision is measured at the entity’s best estimate of the amount needed to settle the liability at the
reporting date considering the risk and uncertainties.
2. If the effect of time value of money is material, the provision is measured at the present value of the
settlement amount discounted at a pre-tax rate.
3. Gains from the expected disposal of asset shall not be taken into account in measuring a provision.
4. Provision shall be reviewed at each reporting date, and adjusted to reflect the current best estimate.
5. A provision shall be used only for expenditures for which the provision was originally recognized.
Reimbursement
If another party is expected to reimburse the settlement amount of a provision, a reimbursement asset is
recognized and presented in the statement of financial position separately from the provision. However in the
statement of financial performance, the expense related to the provision may be presented net of the

reimbursement.
Application of the Recognition and Measurement Rules

a. Future Operating Net Deficits – No provision shall be recognized for expected net deficits from future
operating activities. If expectation indicates that certain assets used in these activities are impaired, they
shall be tested for impairment.
b. Onerous Contracts – shall be recognized as provision.
c. Restructuring – legal obligation exists if at the reporting date, the entity has entered into a binding
agreement to sell or transfer an operation.
True or False.
______________ 1. Legal obligations arise only from law.
______________ 2. A financial liability cannot arise from constructive obligation.
______________ 3. Financial liabilities, except financial liabilities classified to be subsequently measured at fair value
through surplus or deficit, are initially measured at fair value plus transactions.

Entity A issues 10-year, term bonds with face amount of P20 for P12 and incurs transaction costs of P1
on the issuance.
______________ 4. The initial carrying amount of the bonds is P13.
______________ 5. The nominal rate of the bonds is higher than the effective interest rate.
______________ 6. If in Year 1, the interest payment is P1.50 while the interest expense is P2, the carrying amount
of the bonds at the end of the period must be P11.50.
______________ 7. If one or more of the liability recognition criteria are not met, the item is a contingent liability.
______________ 8. A provision is a liability of uncertain timing or amount.
______________ 9. Provisions are never discounted to their present value.
______________ 10. The obligation under an onerous contract is recognized as a provision.



1. Financial liabilities, other than those that are classified to be subsequently measured at fair value through
surplus or deficit, are measured as follows:
Initial Subsequent
a. Fair Value Amortized Cost
b. Fair Value plus transaction costs Amortized Cost
c. Fair Value minus transaction costs Amortized Cost
d. Fair Value plus transaction costs Fair Value less costs to sell
2. Which of the following is not a financial liability?
a. Accounts Payable
b. Notes Payable
c. Electricity bill payable
d. Due to BIR
3. Transaction costs on issuing bonds are
a. expensed outright
b. added to the initial carrying amount of the bonds
c. deducted from the initial carrying amount of the bonds
d. subsequently amortized as expense using the straight line method
4. An entity issues term bonds at a discount. If the bonds are subsequently measured at amortized cost,
which of the following statements is not correct?
a. Interest expense each period exceeds interest payment
b. Total interest expense over the term of the bonds equals total interest payments plus the amount of
discount on initial recognition.
c. The carrying amount of the bonds decreases each period
d. The carrying amount of the bonds increases each period
5. The carrying amount of bonds payable in the prior year's financial statements is P 100,000. This year, the
carrying amount of the same bond issuance is P 102,000. Which of the following assumptions is least
likely to be valid?
a. The face amount of the bonds is P120,000.
b. The bonds were issued at a discount of P20,000
c. The interest expense during the period is P10,000 while the interest payment is P12,000.
d. Total interest expense over the term of the bonds will exceed total interest payments by P 20,000.
e. All of these are equally acceptable.
6. Entity A issues 5-year bonds at a discount. At the beginning of the 3rd year, Entity A retires the bonds at
a premium. Which of the following statements is correct?
a. Entity A recognizes gain on the retirement.
b. Entity A recognizes loss on the retirement.

c. Entity A recognizes neither gain nor loss on the retirement.

d. Answer cannot be determined due to insufficient data.

On January 1, 20x1, the BTr issues a 5-year, 5%, P 3,000,000 bonds for P 2,640,656. Interest payments are due
every December 31 but the principal is due only at maturity date. The effective interest rate is 8%.
7. The entry on December 31, 20x1 to recognize interest expense is:
a. Interest Expense 211,252
Discount on Bonds Payable-Domestic 61,252
Cash in Bank-Local Currency, BSP 150,000
b. Interest Expense 211,252
Cash - MDS, Regular 150,000
c. Interest Expense 211,252
Interest Payable 150,000
d. Interest Expense 150,000
Cash – MDS, Regular 211,252
8. The carrying amount of the bonds on December 31, 20x1 is
a. P 2,579,404
b. P 2,701,909
c. P 2,768,061
d. P 2,786,061
9. The unamortized bond discount on December 31, 20x2 is
a. P 359,344
b. P 298,092
c. P 231,939
d. P 213,939
10. A provision is measured at

a. cost
b. fair value
c. lower of cost and fair value
d. the entity’s best estimate of the settlement amount

C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

_______________________________________________________________.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1. Contingent liability - possible obligation that arises from past events, and whose existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control
of the entity.
A present obligation that arises from past events, but is not recognized because:
o It is not probable that an outflow of resources embodying economic benefits or service potential
will be required to settle the obligation.
o The amount of the obligation cannot be measured with sufficient reliability.
2. Financial liabilities are initially measured at fair value less transaction costs, except for financial liabilities at
fair value through surplus or deficit whose transaction costs are expensed and subsequently measured at

amortized cost, except for financial liabilities at fair value through surplus or deficit which are subsequently
measured at fair value.
Activity 3
1. False. • Liability is a present obligation arising 4. True.
from past events. 5. True
2. False. • It can be results from an entity’s 6. False. P13.5 (13 + (2 minus 1.5))
actions that create a valid expectation from others 7. True.
that the entity will accept and discharge certain 8. True
responsibilities. 9. True.
3. False. Financial liabilities are subsequently 10. True.
measured at an amortized cost.
Activity 5
1. A
2. D
3. D
4. C
5. D
6. C
7. B
8. B
9. C
10.D

Lesson Title: Leases Materials:

At the end of this module, I students should be able to:
1. Differentiate between a finance lease and an operating lease. References:
2. Account for finance leases by lessees and by lessors. Millan, Z. V. (2018). Government
3. Account for operating leases by lessees and by lessors Accounting & Accounting for Non-

Productivity Tip:
“The way to get started is to quit talking and begin doing.” - Walt Disney
we will see how government entities account for Leases.

1. What are the two classifications of
leases?
2. When is the commencement of the

lease term?

B. MAIN LESSON
Lease is 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.
Classification of Leases
1. Finance lease — a lease that transfers substantially all the risks and rewards incidental to ownership of an
asset.
2. Operating lease — a lease that does not that transfer substantially all the risks and rewards incidental to
ownership of an asset.
The classification of a lease depends on the substance of the transaction rather than the form of the contract.
Events that lead to a finance lease classification:

• The lease transfers ownership of the asset to the lessee by the end of the lease term.
• The lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than
the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception
of the lease, that the option will be exercised ('bargain purchase option').
• The lease term is for the major part of the economic life of the asset even if title is not transferred. A lease
qualifies to be accounted for as finance lease if the contract is a non-cancellable contract.
• At the inception of the lease, the present value of the minimum lease payments amounts to at least
substantially all of the fair value of the leased asset.
• The leased assets are of such a specialized nature that only the lessee can use them without major
modifications.
• The leased assets cannot easily be replaced by another asset.
• If the lessee can cancel the lease, the lessor’s losses associated with the cancellation are borne by the
lessee.
• Gains or losses from the fluctuation in the fair value of the residual (leased asset) accrue to the lessee (for
example in the form of a rent rebate equalling most of the sales proceeds at the end of the lease.)
• The lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower
than market rent.
Lease of Land and Building (finite and indefinite life)

When a lease includes both land and buildings elements, each element shall be classified separately as either
operating or finance lease. Allocation is based on their relative fair values at the inception of the lease.

Inception of the lease – is the earlier of the date of the lease agreement and the date of commitment by the
parties to the principal provisions of the lease.
Commencement of the lease term – is the date from which the lessee is entitled to exercise its right to use the
leased asset. It is on this date that any asset or liability resulting from the lease is initially recognized.
Accounting for Finance lease by lessees

At the commencement date, a lessee recognizes the asset acquired under a finance lease and the related lease
liability measured at lower of
(a) fair value of the leased property at inception date; and
(b) present value of the minimum lease payments at inception date.
Minimum lease payments include the following:

a. Rentals, excluding contingent rent, costs for services and taxes reimbursable to the lessor;
b. Bargain purchase option; and
c. Guaranteed residual value
Contingent rent – is lease payment that is not fixed in amount but rather based on the future amount of a factor
that changes other than the passage of time. It is recognized as expense in the period incurred.
The minimum lease payments are discounted using the interest rate implicit in the lease, if it is
determinable, if not, the lessee’s incremental borrowing rate is used.
Indirect costs are capitalized as part of the asset recognized.
Lease liability is subsequently measured similar to the amortized cost financial liability.
Lease asset is accounted similar to an owns asset. It is depreciated using the entity’ existing depreciation
policies. If there are no reasonable certainty that the lessee will obtain ownership by the end of the lease
term, the asset shall be depreciated over the shorter of its useful life and the lease term.
Accounting for Finance lease by lessors

A lessor recognizes the lease payments receivable under a finance lease at an amount equal to the net investment
in the lease.
Initial direct costs are included in the initial measurement of finance lease receivable and reduce the amount of
revenue recognized over the lease term.
Interest rate implicit in the lease – is the discount rate that, at the inception of the lease, causes the aggregate
present value of:
1. The minimum lease payments;

2. The guaranteed residual value,

to be equal to the sum of (a) fair value of the lease asset and (b) any initial direct costs of the lessor.
Operating lease
➢ A lessee (lessor) under an operating lease recognizes the lease payments as expense (income) on a
straight line basis over the lease term, unless another systematic basis is more representative of the time
pattern of the user’s benefit.
➢ Initial direct cost incurred by the lessor are added to the carrying amount of the lease asset and
recognized as expense over the lease term on the same basis as the lease income.
➢ Initial direct costs incurred by lessees are treated as prepaid rent and recognized as expense on the same
basis as the lease expense.
True or False.
______________ 1. If a lease transfers ownership of the property to the lessee by the end of the lease term, it will be
classified as a finance lease by the lessor.
______________ 2. Minimum lease payments include any amount to be paid for bargain purchase options and
guaranteed residual values.
______________ 3. Any lease that contains a purchase option must be treated as a finance lease by the lessor.
______________ 4. The lessee depreciates the leased asset under a finance lease.
______________ 5. The inception of the lease is defined as the date of the lease agreement or the date of an earlier
written commitment.
______________ 6. The commencement of the lease term is defined as the date on which the leased property is
actually transferred to the lessee.
______________ 7. A lessor under a finance lease recognizes a net investment in the lease measured at the present
value of the lease payments and unguaranteed residual value, if any.
______________ 8. Interest rate implicit in the lease is the discount rate that, at the inception of the lease, causes
the aggregate present value of the minimum lease payments and the unguaranteed residual
value to be equal to the sum of the fair value of the leased asset and any initial direct costs of
the lessor.
Use the following information for the next two questions:

Entity A (lessor) enters into a 10-year finance lease with Entity B. Lease payments of P 100 are due at the start of
each year. The interest rate implicit in the lease is 10%.
______________ 9. At the commencement date, Entity A will recognize a net investment in the lease computed as
PIOO x PV of ordinary annuity @10%, n=10.
______________ 10. Entity A will recognize interest income in Year 1 computed as follows: (present value of lease
payments – first payment) * 10%.


1. A government entity, which is a lessee under a finance lease, recognizes an asset acquired under a finance
lease, and the related lease liability, measured at
a. the fair value of the leased property at inception date
b. the present value of the minimum lease payments at inception date
c. the lower of a and b
d. the higher of a and b
2. Entity A acquires an asset under a finance lease. The lease does not transfer ownership or contain any
purchase option. Which of the following statements is correct?
a. The lease cannot qualify for accounting as finance lease
b. Entity A will depreciate the leased asset over the shorter of the asset's useful life and the lease term
c. Entity A will depreciate the leased asset over its useful life
d. Entity A will not depreciate the asset
3. In accounting for finance leases, lease payments are discounted using
a. the interest rate implicit in the lease
b. lessee's incremental borrowing rate.
c. a or b
d. a, if this is determinable; if not, then b
4. On December 30, 20x5, Entity A leased a new machine from Gregg Corp. The following data relate to the
lease transaction at the inception of the lease:
Lease term 10 years
Annual rental payable at the end of each lease year P 100,000
Useful life of the machine 12 years
Implicit interest rate 10%

Fair value of the machine P 700,000
The lease has no renewal option, and the possession of the machine reverts to Gregg when the lease
terminates. At the inception of the lease, Entity A should record a lease liability of
a. P 0
b. P 615,000
c. P 630,000
d. P 676,000
5. On January 2, 20x6, Entity A entered into a ten-year non-cancellable lease requiring year-end payments
of P100,000. Entity A's incremental borrowing rate is while the lessors implicit interest rate, known to
Entity A, is 10%. Ownership of the property remains with the lessor at expiration of the lease. There is no
bargain purchase option. The leased property has an estimated economic life of 12 years. What amount
should Entity A capitalize for this leased property on January 2, 20x6?
a. P 1,000,000
b. P 614,500
c. P 565,000
d. P 0
6. Entity A entered into a nine-year finance lease on a warehouse on December 31, 20x1. Lease payments
of P52,000, which include real estate taxes of P2,000, are due annually, beginning on December 31, 20x1,
and every December 31 thereafter. Entity A does not know the interest rate implicit in the lease; Entity A's
incremental borrowing rate is 9%. What amount should Entity A report as finance lease liability at
December 31, 20x1?
a. P 280,000
b. P 291,200
c. P 450,000
d. P 468,000
7. On January 2, 20x9, Entity A (lessee) entered into a 5-year lease for drilling equipment. Entity A accounted
for the acquisition as a finance lease for P240,000, which includes a P10,000 bargain purchase option. At
the end of the lease, Entity A expects to exercise the bargain purchase option Entity A estimates that the
equipment's fair value will be P20,000 at ethe end of its 8-year life. Entity A regularly uses straight-line
depreciation on similar equipment. For the year ended December 31, 20x9, what amount should Entity A
recognize as depreciation expense on the leased asset?
a. P 48,000
b. P 46,000
c. P 30,000
d. P 27,500

8. Entity A leases computer equipment to customers under direct-financing leases. The equipment has no
residual value at the end of the lease and the leases do not contain bargain purchase options. Entity A
wishes to earn 8% interest on a five-year lease of equipment with a fair value of P323,400. The first rental
payment is due at the lease commencement. What is the total amount of interest revenue that Entity A
will earn over the life of the lease?
a. P 51,600
b. P 75,000
c. P 129,360
d. P 139,450
9. On June 1, 20x0, Entity A entered into a five-year nonrenewable lease, commencing on that date, for
office space and made the following payments to Cant Properties:
Bonus to obtain lease 30,000
First month’s rent 10,000
Last month’s rent 10,000
In its statement of financial performance for the year ended June 30, 20x0, what amount should Entity A
report as rent expense?
a. P 10,000
b. P 10,500
c. P 40,000
d. P 50,000
10. On July 1, 20x6, Entity A leased a delivery truck from Entity B under a 3-year operating lease. Total rent
for the term of the lease will be P 36,000, payable as follows:
12 months at P 500 = P 6,000
12 months at P 750 = 9,000
12 months at P 1,750 = 21,000
All payments were made when due. In Entity B’s June 30, 20x8, balance sheet, the accrued rent receivable
should be reported as
a. P 0
b. P 9,000
c. P 12,000
d. P 21,000
C. LESSON WRAP-UP
you finished.


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______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1. Classification of lease are as follows:
➢ Finance lease
➢ Operating lease
2. Commencement of the lease term – is the date from which the lessee is entitled to exercise its right to use
the leased asset. It is on this date that any asset or liability resulting from the lease is initially recognized.
Activity 3
1. True 7. True.
2. True. 8. True
3. True 9. True.
4. True. 10. False. Computation should be the difference
5. True between (a) present value multiplied to 10% and
6. False. It is when the lessee is entitled to exercise (b) first payment.
its right to use the lease asset.

Activity 5
1. C
2. B
3. A
4. A
5. B
6. A
7. D
8. A
9. B
10.B

Lesson Title: Financial Statements Part 1 Materials:

1. State the general principles in the presentation of financial References:
statements. Millan, Z. V. (2018). Government
2. Prepare a complete set of general purpose financial Accounting & Accounting for Non-
statements of a government entity, including a partial notes to Profit Organizations.
the financial statements, Part I
Productivity Tip:
“Real integrity is doing the right thing, knowing that nobody’s going to know whether you did it or not.”
- Oprah Winfrey
we will see how government entities prepare their financial statements.

1. What makes financial statement
unique to government entities?
2. How should government entities

present cash flows from operating
activities?
B. MAIN LESSON


General Purpose Financial Statements are those intended to meet the needs of users who are not in a position
to demand reports tailored to meet their particular information needs.
Objectives of General Purpose Financial Statements

• To provide information about the entity’s financial position, financial performance and cash flows that are
useful to a wide range of users in making economic decisions.
• To demonstrate the accountability of the entity for the resources entrusted to it.
Responsibility for Financial Statements

The responsibility over financial statements rests with the entity’s management, particularly the Head of the Entity
jointly with the Head of Finance/Accounting. The Statement of Management Responsibility for Financial
Statements shall be attached to the financial statements as a cover letter.
Components of General Purpose Financial Statements

a. Statement of Financial Position;
b. Statement of Financial Performance;
c. Statement of Changes in Net Assets/Equity
d. Statement of Cash Flows;
e. Statement of Comparison of Budget and Actual Amounts; and
f. Notes to Financial Statements, comprising a summary of significant accounting policies and other
explanatory notes.
General Principles
• Fair Presentation
• Compliance with PPSASs
• Departure from PPSAS
• Going Concern
• Consistency of Presentation
• Materiality and Aggregation
• Offsetting
• Comparative Information
Identification of the Financial Statements

The following information shall be displayed prominently and repeatedly:
• Name of the reporting entity

• Whether the financial statements cover the individual entity or a group of entity
• The reporting date or the period covered by the financial statements, whichever is appropriate to that
component of the financial statements
• Name of fund cluster
• The reporting currency
• The level of rounding-off of amounts
Reporting Period
Financial statements shall be presented at least annually.
Statement of Financial Position

The statement of financial position shows the entity’s financial condition as at a certain date. It is presented in
comparative, condensed and detailed formats.
1. Condensed Statement of Financial Position
2. Detailed Statement of Financial Position – presents all the asset, liability and equity accounts in the
Revised Chart of Accounts.
Current Assets Current Liabilities
a. Expected to be realized in, or it is held for sale or a. Expected to be settled in the entity’s normal
consumption in, the entity’s normal operating cycle. operating cycle.
b. Held primarily for trading b. Held primarily for trading
c. Expected to be realized within 12 months after the c. Expected to be settled within 12 months after the
reporting date. reporting date
d. It is cash or cash equivalent, unless it is restricted d. The entity does not have an unconditional right
from being exchanged or used to settle a liability for to defer settlement of the liability for at least twelve
at least twelve months after the reporting date. months after the reporting date.
All other assets and liabilities are classified as noncurrent.
Statement of Financial Performance

The statement of financial performance shows the revenue, expenses and surplus or deficit for the period. It is
presented in comparative, condensed and detailed formats.
The following are the minimum line items to be presented on the face of the statement of financial performance:
• Revenue
• Finance costs
• Share in the surplus or deficit of associates and joint ventures

• Gain or loss attributable to discontinuing operations

• Surplus or deficit
Statement of Changes in Net Assets/Equity

The statement of changes in net assets/ equity shows the increase or decrease in the entity’s net assets during
the period resulting from the following:
a. Surplus or deficit for the period
b. Items of revenue and expense that are recognized directly in equity
c. Effects of changes in accounting policies and corrections of errors
d. The balance of accumulated surpluses or deficits at the beginning of the period and at the reporting date,
and the changes during the period.
Statement of Cash Flows
The statement of cash flows shows the sources and utilizations of cash and cash equivalents during the period
according to the following activities:
• Operating Activities – cash flows from operating activities are primarily derived from the principal cash-
generating activities of the entity.
• Investing Activities – involve the acquisition and disposal of noncurrent assets and other investments.
• Financing Activities – are activities that affect the entity’s equity capital and borrowings
Presentation of Cash flows

Operating Activities – cash flows from (used in) operating activities are presented using the Direct Method. Under
this method, major classes of gross cash receipts and gross cash payments are presented.
Investing and Financing Activities – cash flows from (used in) investing and financing activities are also presented
according to major classes of gross cash receipts and gross cash payments.
True or False.
______________ 1. According to the GAM for NGAs, government entities shall present financial statements at least
annually.
______________ 2. The statement of financial position is dated as at the reporting date.
______________ 3. According to the GAM for NGAs, a Condensed Statement of Financial Position is one that
presents line items only rather than all the accounts used by the entity.
______________ 4. The GAM of NGAs requires government entities to present expenses in the statement of financial
performance according to the function of those expenses.
______________ 5. Government entities present information on other comprehensive income, just like business

entities.
______________ 6. The statement of financial performance of a government entity is the exact equivalent of the
statement of comprehensive income of a business entity.
______________ 7. Non-adjusting events are never recognized but are always disclosed.
______________ 8. Prior period errors are corrected by retrospective restatement.
______________ 9. In the first instance, changes in accounting policies are accounted for by retrospective
application.
______________ 10. Unlike business entities, government entities are required to prepare interim financial
statements on a quarterly basis.


1. Which of the following is not one of the components of a complete set of general purpose financial
statements of government entities?
a. Notes to the Financial Statements
b. Statement of Appropriations , Allotments, Obligations, Disbursements and Balances
c. Statement of Comparison of Budget and Actual Amounts
d. Statement of Changes in Net Assets/Equity
2. Which of the following is most likely applicable to a government entity but not to a business entity?
a. Presenting a classified statement of financial position showing distinctions between current and
noncurrent assets and liabilities.
b. Presenting additional disclosures in the notes when expenses are presented in the statement of
financial performance by function
c. Presenting cash flows from operating activities in the statement of cash flows using the direct method.
d. Presenting a statement of financial position in a detailed format.
3. Additional disclosures shall be made in the notes if an entity presents expenses by
a. nature
b. function
c. current/noncurrent
d. all of these
4. The statement of financial performance of a government entity differs from the statement of profit or
loss of a business entity in which of the following respects?

a. The use of the term “surplus or deficit” rather than “profit or loss.”
b. The use of the term “surplus or deficit” rather than “comprehensive income.”
c. The use of the term “revenues” rather than “income.”
d. The presentation of expenses by nature rather than by function.
5. The closing of the “Cash-Treasury/Agency Deposit, Regular” account to the “Accumulated Surplus
(Deficit)” account is presented in the statement of changes in equity
a. as an adjustment to the opening balance of equity
b. as part of operating activities
c. under the “Adjustment of net revenue recognized directly in net assets/equity” line item
d. not presented
6. The GAM for NGAs requires which of the following methods of presenting cash flows from (used in)
operating activities in the statement of cash flows?
a. Direct Method
b. Indirect Method
c. a or b
d. neither a nor b
7. A government entity presents payments for purchases of inventories in the statement of cash flows
a. under investing activities
b. net of withholding taxes
c. gross of withholding taxes
d. as footnote disclosure only
8. Which of the following cash flows is presented in the financing activities section of a statement of cash
flows?
a. Lease payments under an operating lease
b. Lease payments under a finance lease
c. Receipt of repayment of loan
d. Amortization of a finance lease liability
9. The Notice of Cash Allocation (NCA) is least likely to be reported in which of the following financial
statements?
a. Statement of financial position
b. Statement of financial performance
c. Statement of cash flows
d. Notes to the financial statements
10. Which of the following is an adjusting event?
a. Settlement of a court case that evidences a present obligation after the reporting date
b. Bankruptcy of a debtor caused solely by an event that occurred after the reporting date

c. Sale of inventories that evidences the correct NRV of inventories at the reporting date
d. Destruction of a building due to fire that occurred after the reporting date
C. LESSON WRAP-UP
you finished.
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______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1. Unlike private entities, part of government financial statement composition is the Statement
Comparison of Budget and Actual Amounts.
2. Cash flows in Operating Activities are presented using the Direct Method where major classes of gross cash
receipts and gross cash payments are presented.

Activity 3
1. True 5. True
2. True. 6. True
3. False. The reporting date or the period covered 7. True.
by the financial statements, whichever is 8. True
appropriate to that component of the financial 9. False. Change in accounting estimate is
statements accounted for by prospective application.
4. False. Expenses may be presented according to 10. True..
their function or nature, whichever is appropriate.
Activity 5
1. B
2. C
3. B
4. B
5. B
6. C
7. C
8. A
9. D. It is presented in Statement Comparison of Budget and Actual Amounts.
10.A

Lesson Title: Financial Statements Part 2 Materials:

At the end of this module, I students should be able to:
References:
1. Prepare a complete set of general purpose financial Millan, Z. V. (2018). Government
statements of a government entity, including a partial notes to Accounting & Accounting for Non-
the financial statements, continuation. Profit Organizations.
2. Describe the accounting and disclosure requirements for
events after the reporting date, changes in accounting policies, Punzalan, A. & Cardona, M (2014).
changes in accounting estimates, and correction of errors and Government Accounting
some reports prepared by government entity.
Productivity Tip:
“Efficiency is doing things right. Effectiveness is doing the right things.” - Peter Drucker
we will continue to discuss how government entities prepare their financial statements. In the first part,
we unlocked the general principles in the presentation of financial statements and also discussed financial
position, financial performance, statement of changes in Net Assets/Equity and Statement of Cash Flows.
In this module, we will see how Statement of Comparison of Budget and Actual Amounts, and the Notes
to Financial Statement. Also, some of the required disclosures.

1. These are events that provide
evidence of conditions that existed at
the reporting date?

2. What is the application of change in

accounting estimate?
B. MAIN LESSON
Statement of Comparison of Budget and Actual Amounts

The statement of comparison of budget and actual amounts shows the differences (variances) between budgeted
amounts and actual results for a given reporting period.
The statement of comparison of budget and actual amounts shows the following:
a. Budget information – consists of, among others, data on appropriations, allotments, obligations, revenues
and other receipts, and disbursements. This is based on the budget registries which includes
a. Original budget – the initially approved budget, usually the GAA; and
b. Final budget – original budget adjusted for all reserves, carry-over amounts, realignments,
transfers, allocation, and other authorized legislative.
b. Actual amounts on a comparable basis – these represent the actual disbursements made during the
period. The computed differences is classified as
a. Basic Differences – occur when approved budget is prepared on a basis other than the accounting
basis;
b. Timing Differences – occur when the budgeted period differs from the reporting period reflected
in the financial statements; and
c. Entity Differences – occur when the budget omits program or entities that are part of the entity
for which the financial statements are prepared.
c. Differences between (a) and (b) – explanations of material differences shall be made in the notes.
Notes to Financial Statements

The notes to financial statements provide information in addition to those presented in the other financial
statements.
The notes shall be structured in a systemic and logical manner to show the following:
1. General information on the reporting entity
2. Statement of compliance with the PPSAS and Basis of preparation of financial statements
3. Summary of significant accounting policies.
4. Disaggregation (breakdowns) and other supporting information for the line items in the other financial

statements.
5. Other disclosures required by PPSAS, such as:
a. Explanations for the differences between budgeted and actual amounts
b. Events after the reporting date, if material
c. Changes in accounting policies and accounting estimates and prior period errors
d. Contingent liabilities, contingent assets, and unrecognized contractual commitments
e. Related party disclosure
f. Non-financial disclosures
6. Other disclosures not required by PPSAS but the management deems relevant to the understanding of
the financial statements.
Events after the Reporting Date – are events, both favorable and unfavorable, that occur between the reporting
date and the date when the financial statements are authorized for issue.
a. Adjusting events – those that provide evidence of conditions that existed at the reporting date.
b. Non-adjusting events – those that are indicative of conditions that arose after the reporting date.
Reporting date – end of the calendar year.

Date of authorization of financial statements for issue – date of signing the Statement of Management
Responsibility for financial statements by the Head of Agency and Head of Finance Department.
Adjusting events after the reporting date

The financial statements are adjusted to reflect adjusting events after the reporting date. Examples are:
o Settlement of a court case that evidences a present obligation at the reporting date.
o Bankruptcy of a debtor that evidences an impairment of a receivable at the reporting date.
o Sale of inventories that evidences the correct NRV of inventories at the reporting date.
o Determination of the amount of revenue pursuant to a revenue sharing agreement with another entity.
o Determination of employee bonuses, if the entity has a present obligation to make payments as of the
reporting date.
o Discovery of fraud or errors that show that the financial statements were incorrect.
Non-adjusting events after the reporting date

Non-adjusting events are disclosed only, if they are material. Examples:
o Acquisition or disposal of a major controlled entity.
o Announcement of a plan to discontinue an operation or a major program.
o Major purchase and disposal of asset.

o Destruction of a building by a fire after the reporting date.
Change in accounting policies

Accounting policies are the specific principles, bases, conventions, rules, and practices applied by an entity in
preparing and presenting financial statements. Change in accounting policy is accounted for as follows:
a. Using transitional provision
b. In the absence of transitional provision, by retrospective application
c. If retrospective application is impracticable, by prospective application
Change in accounting estimates

Change in accounting estimates result from new information or new developments, and accordingly, are not
correction of errors. Change in accounting estimate is accounted for by prospective application which recognize
the effect of the change in surplus or deficit either in the (a) period of change or (b) period of change and future
periods, if the change affects both.
Errors
Include mathematical mistakes, incorrect application of accounting policies, oversights, or misinterpretations of
facts, and fraud. Errors can be classified as:
o Current period error – errors committed, and discovered, in the current year. These are corrected on the
same year.
o Prior period error – errors committed in the prior years that are discovered in the current year. Material
prior period errors are corrected by a retrospective restatement. If it is not practical, prior period errors
are corrected prospectively.
Consolidated and Separate Financial Statements

A controlling entity is required to present consolidated financial statements, except in cases where the controlling
entity is the controlled entity itself and its securities are not being traded.
Separate financial statements are presented by a controlling entity, an investor in an associate, or a venturer in a
jointly controlled entity, in which the investment are accounted for on the basis of direct net asset/equity interest
rather than on a basis of the reported results and net assets of the investee.
Interim Financial Statements – prepared by government entities on a quarterly basis using the asame
accounting policies used in annual reports.

Other Reports required to be prepared are as follows:

1. Trial Balance (Pre-closing and Post-closing)
2. Other schedules
a. Regional Breakdown of Income
b. Regional Breakdown of Expense
Solve Problem 14-3: Financial Statement Presentation, requirement A. (p 370 – 373, Millan, Government
Accounting & Accounting for Non-Profit Organizations)


1. These refer to financial statements intended to meet the needs of users who are not in a position to
demand reports tailored to meet their particular information needs
a. All-Purpose Financial Statements
b. General Purpose Financial Statements
c. Managerial Reports
d. Financial Reports
2. Which of the following is an objective of the general purpose financial statements of government entities?
a. To provide information about the entity’s financial position, financial performance, and cash flows that
is useful to a wide range of users in making economic decisions.
b. to demonstrate the accountability of the entity for the resources entrusted to it
c. to provide information needed in the day-to-day management of an entity
d. a and b
3. According to the GAM for NGAs, the responsibility over financial statements rests with the entity’s
management, particularly the
a. Head of the Entity
b. Head of Finance/Accounting
c. COA Auditor
d. a and b
4. Which of the following is a peculiar general purpose financial statement of government entities?

a. Statement of Financial Performance

b. Statement of Appropriations, Allotments, Obligations, Disbursements and Balances
c. Statement of Comparison of Budget and Actual Amounts
d. Statement of Changes in Net Assets/Equity
5. Amounts in the statement of financial position show
a. cumulative balances for the reporting period
b. cumulative balances from the formation of the entity up to the reporting date
c. amounts pertaining to the reporting period
d. cumulative balances from the start of the reporting period up to the reporting date
6. According to the GAM for NGAs, the statement of financial position is presented in comparative form
and in
a. a condensed format
b. a detailed format
c. a classified format
d. all of these
7. The effect of which of the following is recognized directly in equity rather than in surplus or deficit
a. Correction of current period errors
b. Effect of changes in accounting estimates
c. gains or losses on remeasuring available-for-sale financial assets
d. All of these
8. Finance lease payments pertaining to the reduction of the outstanding finance lease liability are classified
in the statement of cash flows as
a. Operating activities
b. Investing activities
c. Financing activities
d. not presented
9. Entity A presents its cash flows from operating activities using the direct method. Entity A holds foreign
currencies. These are appropriately translated to the spot exchange rates at the reporting date. How
should Entity A present the translation differences in the statement of cash flows?
a. As an adjustment to surplus or deficit in the operating activities.
b. As a reconciliation of the cash and cash equivalents at the beginning and end of the period, presented
separately from the operating, investing and financing activities.
c. As a cash flow from either investing or financing activities but not operating activities.
d. As a reconciliation of the cash and cash equivalents at the beginning and end of the period, presented
in the notes but not on the face of the statement of cash flows.

10. Which of the following is not among the other reports required to be submitted by government entities
to the COA?
a. Pre-closing trial balance
b. Schedules showing the regional breakdowns of income and expenses
c. Post-closing trial balance
d. a completed 14-column worksheet in yellow color
C. LESSON WRAP-UP
you finished.
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_______________________________________________________________.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1. Adjusting events are those that provide evidence of conditions that existed at the reporting date.

2. Change in accounting estimate is accounted for by prospective application.
Activity 5
1. B
2. D
3. D
4. C
5. B
6. D
7. C
8. C
9. D
10.D

Lesson Title: Miscellaneous Topics Materials:

1. Account for References:
• Service Concession Arrangements by Grantor. Millan, Z. V. (2018). Government
• Account for Interests in Joint Venture. Accounting & Accounting for Non-
2. State the accounting for The Effects of Changes in Foreign Profit Organizations.
Exchange Rates.
Productivity Tip:
“Efficiency is doing things right. Effectiveness is doing the right things.” - Peter Drucker
we will discuss miscellaneous topics regarding Government Accounting.

1. What is a service concession asset?
2. How are foreign currency

transactions initially measured?

B. MAIN LESSON
Service Concession Arrangements by Grantor
➢ a binding arrangement between a grantor and an operator in which:
a. The operator uses the service concession asset to provide a public service on behalf of the grantor
for a specified period of time; and
b. The operator is compensated for its services over the period of the service concession arrangement.
• Other terms for service concession arrangement are “build-operate-transfer”, public-to-private service
concession” and private-public partnership.”
Examples of concession arrangements under RA No. 7718:
• Build-operate-and-transfer – the private company awarded with the contract undertakes to finance the
construction of an infrastructure facility and operate it for a fixed term not to exceed 50 years.
• Build-transfer-and-operate - the private company awarded with the contract undertakes to finance the
construction facility assuming cost overruns, delays and specified performance risks. After the completion
it is transferred to the government. Private company operates the facility on behalf of the government
under agreement.
• Rehabilitate-operate-and transfer - the private company awarded with the contract undertakes to
rehabilitate or refurbish an existing facility of the government then operate it for a certain period, then it
reverted back to the government.
• Develop-operate-and-transfer - the private company awarded with an infrastructure project is also given
the right to develop an adjoining property, thereby enjoying some benefits in the form of higher property
or rent values.
• Contract-add-and-operate – the private entity adds to an existing infrastructure facility, which is renting
from the government, then operates the added facility over an agreed period.
Recognition and Measurement of Asset

The grantor recognizes a service concession asset if:
a. The grantor controls or regulates what services the operator must provide with the asset, to whom it must
provide them, and at what price; and
b. The grantor controls, through ownership, beneficial entitlement or otherwise, any significant residual
interest in the asset at the end of the term of the arrangement
Initial measurement
a. Fair value, if the asset is provided by the operator in accordance with the recognition criteria in (a) and
(b) above
b. Cost, in accordance with the measurement principles for PPE or Intangible Assets, as appropriate, if the

asset is reclassified from the existing assets of the grantor.
Subsequent measurement – accounted for as service concession tangible asset (separate class of PPE) or as
service concession intangible asset (separate class of intangible asset) as appropriate.
Recognition and Measurement of Liability

When the grantor recognizes a service concession asset, the related liability is measured at the same amount,
adjusted for any other consideration (e.g. cash) received from or paid to the operator.
In exchange for the service concession =, the grantor may compensate the operator by one or combination of
the following:
a. Right to collect fees from the users of the service concession asset; or
b. Right to access another revenue-generating asset for the operator’s use.
Financial Liability Model

The grantor recognizes a financial liability if it incurs an unconditional obligation to pay cash or another financial
asset to the operator in exchange for the service concession asset. Payments are allocated as follows:
• Reduction in the liability, a finance charge, and charges for services provided by the operator.
• Based on the relative fair value of components if these components are separately identifiable.
Grant of Right to the Operator Model

If the operator is compensated by a grant of right to earn revenue from third-party users or another revenue-
generating asset, the grantor recognizes liability for the unearned portion of the revenue arising from the
exchange of assets between the grantor and operator.
Dividing the Arrangement

If the operator is compensated partly by payments and partly by grant of right, the grantor shall allocate the
total liability to these elements and account for them separately.
Impairment and Derecognition

The grantor uses the same principle used for PPE and intangible assets to account for the impairment or
derecognition of service concession asset.
Interests in Joint Venture

Joint Venture – a binding arrangement whereby two or more parties are committed to undertake an activity

that is subject to joint control.
Joint control - the agreed sharing of control over an activity by a binding arrangement.
Joint Controlled Operations – each venturer uses and recognizes its own assets, incurs its own liabilities and
expenses, but each will share in the income from sales by the joint venture. Venturer is a party to the joint venture
and has joint control over that joint venture.
Joint Controlled Assets – each venturer recognizes its share in the assets, liabilities, income and expenses of the
joint venture, classified according to the nature of those items, rather than through an investment account.
Joint Controlled Entities – in a jointly controlled entity, a separate entity is established. The separate entity
recognizes its own assets, liabilities, equity, income and expenses in its own books of accounts, separate from
those of the venturers. The investment in joint venture is accounted for under equity method.
The Effects of Changes in Foreign Exchange Rates

Initial Measurement – translating the foreign currency amount into the functional currency using the spot
exchange rate.
• Foreign Currency Transactions – transactions that are denominated and require settlement in foreign
currency.
• Foreign Currency – a currency other than the functional currency of the entity.
• Functional Currency – the currency of the primary economic environment in which the entity operates.
• Spot Exchange Rate – the exchange rate of immediate delivery, the current exchange rate on a given date.
• Exchange Rate – the ratio of exchange for two currencies.
Subsequent Measurement – translated as follows:

• Monetary Items – closing rate. Closing rate is the spot exchange rate at the reporting date.
• Nonmonetary items measured at historical cost – exchange rate at the date of transaction.
• Nonmonetary items measured at fair value – exchange rate at the fair value measurement date.
Exchange Differences
Exchange differences arising from the translation of:
• Monetary items are recognized in surplus or deficit in the period in which they arise.
• Nonmonetary items – if the gain or loss is recognized in equity, the exchange component of the gain or
loss is also recognized in equity; if the gain or loss is recognized in surplus or deficit, the exchange

component is also recognized in surplus or deficit.
Exchange difference – the difference resulting from translating a given number of units of one currency into
another currency at different exchange rates.
Translation of Financial Statements

An entity is required to present its financial statements using its functional currency. However, whenever needed
following presentation currency may also be used:
Items Translated Using
a. Assets and Liabilities (including comparatives) Closing rate at the date of the statement of financial
position
b. Revenue and Expenses (including comparatives) Exchange rates at the dates of the transactions
All resulting exchange differences are recognized as a separate component of equity.
True or False.
Entity A, a government entity, enters into a service concession arrangement with a private entity. Under the
arrangement, the operator undertakes to provide the grantor a tangible service concession asset. In return, Entity
A will compensate the operator by making payments of P10 per year in the next 20 years.
______________ 1. If the appropriate present value factor is 3.50, Entity A will recognize the service concession asset,
and the related financial liability, at P35.
______________ 2. In subsequent periods, Entity A will recognize depreciation expense on the asset and interest
expense on the liability.
______________ 3. Entity A is a joint venturer in a joint venture that is classified as jointly controlled assets. Entity A
owns 50% interest in the joint venture. At the end of the period, Entity A has total assets of P100
while the joint venture has total assets of P50. Entity A will report total assets of P125 in its current
year financial statements.
Use the following information for the next five questions:

Entity A, a government entity, acquired inventory from a foreign company for $10, on account, when the spot
exchange rate was $1:P50. At the reporting date, the exchange rate was $1:52. Entity A settled the purchase after
the reporting date when the exchange rate was $1:49.

______________ 4. If the inventory is consumed by the reporting date, the carrying amount of the inventory charged
as expense is P500.
______________ 5. If the inventory remains unsold at the reporting date, its carrying amount in the statement of
financial position is P520.
______________ 6. Entity A reports an accounts payable of P520 at the reporting date.
______________ 7. Entity A recognizes a foreign exchange loss of P20 at the reporting date.
______________ 8. Entity A recognizes a net foreign exchange gain of P30 from the transaction.

Entity A, a government entity, reports total assets of P100, total liabilities of P80, total revenues of P10 and total
expenses of P6 for the current year. Entity A wants to translate its financial statements into dollars. The following
are the exchange rates:
Dec 31 (reporting date) $1:P10
Average rate for the year $1:P8
______________ 9. The translated total assets is P1,000.

______________ 10. The translated total equity is P200.


1. Under a service concession arrangement, the operator uses the service concession asset to provide
a. public service
b. private service
c. concession service
d. a or b
2. The operator in a service concession arrangement is a
a. government entity
b. private entity
c. controlled entity
d. a or b
3. The operator in a service concession arrangement undertakes to provide the grantor a service concession
asset. If the grantor regulates what services the operator must provide with the service concession asset,

to whom it must provide them, and at what price, and the grantor controls significant residual interest in
the asset, the service concession asset is initially measured at
a. cost
b. fair value
c. either a or b
d. cost less accumulated depreciation
4. The grantor subsequently accounts for a service concession asset as
a. PPE
b. Intangible asset
c. a or b
d. none of these
5. Which of the following is a joint venture that is classified as ‘jointly controlled operations’?
a. Two parties agree to coproduce a product using their existing facilities. Each party bears its own costs
but share in the revenue from sales of the coproduced product
b. Two parties agree to contribute resources to acquire a warehouse. Each of the parties shall have equal
rights over the use of the warehouse but shall share in the maintenance costs
c. Two parties agree to contribute capital in the incorporating a new entity. The new entity will issue shares
of stocks to the parties representing their respective interests in the new entity.
d. Two parties agree to contribute money to acquire a piece of land and subdivide it after the acquisition.
6. Entity A acquires 50% interest in a joint venture for P1M and appropriately records the transaction under
an investment account. At the end of the period, the joint venture reports profit of P1M and distributes
P600,000 to the owners. How much is the carrying amount of the investment account in Entity A’s current
year financial statements?
a. P 1.3M
b. P 1.2M
c. P 1M
d. none of these
7. The exchange differences arising from the translation of monetary items are recognized in
a. surplus or deficit
b. equity
c. a or b
d. not recognized
8. Entity A, a government entity, acquires a machine for $10,000 on Sep. 1, 20x1, on account, and settles the
account on Oct. 31, 20x1. Entity A classifies the machine as PPE. The exchange rates are as follows:
Sep 1, 20x1 $1:P50
Oct 31, 20x1 $1:45

Dec 31, 20x1 $1:40

In Entity A’s Dec. 31, 20x1 statement of financial position, how much is the reported cost of the machine?
a. P 500,000
b. P 450,000
c. P 400,000
d. $ 10,000
9. Entity A, a government entity, submits financial statements to the COA using the Philippine peso.
However, Entity A also wants to prepare financial statements in North Korean won. Which of the following
statements is correct?
a. Entity A may translate its financial statements to any currency as there is no restrictions regarding
presentation currency.
b. Entity A may translate its financial statements in North Korean won only if this is Entity A’s functional
currency.
c. Entity A shall only present financial statements using a single currency, which is the entity’s functional
currency.
d. a and c
10. When translating financial statements into a presentation currency other than the entity’s functional
currency, assets and liabilities are translated using the
a. closing rate at the reporting date
b. exchange rates at the dates of the transactions
c. average rate during the period
d. spot exchange rates
C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

_______________________________________________________________.

______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
KEY TO CORRECTIONS
Activity 1 and 4.
1. Service concession asset is either an asset the operator provides to the grantor or an existing asset
of the grantor that the operator undertakes to refurbish..
2. A foreign currency is initially measured by translating the foreign currency amount into functional currency
using the spot exchange rate.
Activity 3
1. True 6. True
2. True 7. True.
3. True 8. False. Net foreign exchange gain of P10.
4. True. 9. True
5. True. 10. True.
Activity 5
1. A
2. B
3. B
4. C
5. B
6.B
7. A
8. A

Teachers’ Guide Module #24

9. A
10.A

Lesson Title: Non-profit Organizations Materials:

1. Explain the applicability of the PFRSs to NPOs. References:
2. Account for the assets, liabilities, equity, revenues and Millan, Z. V. (2018). Government
expenses of NPOs and described the financial statements. Accounting & Accounting for Non-
3. State the accounting procedures peculiar to specific types of Profit Organizations.
NPOs.
Productivity Tip:
“The only thing to do with good advice is to pass it on. It is never of any use to oneself.” - Oscar Wilde
we will discuss miscellaneous topics regarding Government Accounting.

1. What is a non-profit organization?
2. How are contributions classified?

B. MAIN LESSON
Non-profit organization (NPO) - (also called not-for-profit entity ‘AFP' or noncommercial organization 'NCO')
is one that carries out some socially desirable needs of the community or its members and whose activities are
not directed towards making profit.
None of the surplus are distributed as dividends.
PFRS principles applicable to NPOs

As stated earlier, the recognition, measurement, derecognition, presentation and disclosure requirements of the
PFRSs can be applied to NPOs. Examples are provided below:
Recognition criteria for assets and liabilities:
a. Meets the definition of an assets and liabilities
b. Probable inflow or outflow of resources
c. Reliable measurement of cost or other value
Measurement of Asset or Liability:
a. Initial measurement of cost except when a relevant PFRS requires measurement at fair value or some
other value
b. Subsequent measurement at amortized cost, under the cost model, or some other measurement model
required by a relevant PFRS
Derecognition of Asset or Liability:
An asset (or liability) is derecognized when it ceases to provide inflow (or require outflow) of resources
embodying economic benefits. The difference between the carrying amount and net proceeds (or net
settlement), if any, is recognized in change in net assets.
Presentation of Financial Statements:
General features: Fair presentation and compliance with PFRSs, Going concern, accrual basis, materiality and
aggregation, offsetting, frequency of reporting, comparative information, and consistency of presentation.
Fund theory vs. Fund accounting

The financial statements of most NPOs are based on the fund theory. The fund theory stresses great importance
on the custody and administration of funds. Accordingly, the source, nature and purpose of the funds held by
the NPO are disclosed in order to give information necessary for users to assess the organization's stewardship

over those funds.

Although fund accounting is an off-shoot of the fund theory, SFAS 117 and the PFRSs do not require the. use of
fund accounting. However, entities are not prohibited from using it.
Under fund accounting, the main accounting unit is the fund. Accordingly, transactions are accounted for in the
books and presented in the financial statements strictly based on their fund classifications as either (1)
Unrestricted, (2) Temporarily restricted, or (3) Permanently restricted.
Contributions
A majority of the revenues of NPOs come from charitable contributions or donations.
Contributions refer to resources received in non-reciprocal transactions. Contributions exclude those that result
from exchange transactions (i.e., resources received in exchange for other resources or obligations).
SFAS 116 classifies contributions based on donor's restrictions as follows:
1. Unrestricted – available for immediate use and for any purpose.
2. Temporarily restricted – restricted by the donor in such a way that the availability of the contribution for
the NPO’s use is dependent upon:
a. The performance of a specific task
b. The happening of a future event
c. The passage of time
3. Permanently restricted – restricted by the donor in such a way that the organization will never be able to
use the contribution itself; however, the organization may be able to use the income therefrom.
Recognition and measurement
Cash and other Non-cash assets

Cash and other non-cash assets received as contributions are recognized as revenues in the period received and
as assets, decreases of liabilities, or expenses depending on the form of the benefits received.
Contributions are measured at fair value at the date of contribution, and are reported as either:
● Unrestricted support – revenue from unrestricted contributions
● Restricted support – revenue from temporarily restricted or permanently restricted contributions
Unconditional promises
Unconditional promise to give cash or other non-cash assets in a future period is recognized when the
unconditional promise to give is received from the donor. Generally, such unconditional promise is classified as
a temporarily restricted contribution because of the time restriction (i.e., to be received in the future). In the event
that the promised contribution becomes doubtful of collection, an allowance for uncollectability is recognized.

Conditional promises
Conditional promises to give, which depend on the occurrence of a specified future and uncertain event to bind
the promisor, are recognized only when the attached conditions are substantially (i.e., when the conditional
promise becomes unconditional). A conditional promise to give is considered unconditional if the possibility that
the condition will not be met is remote (that is, the possibility that the conditions will be met is reasonably
certain).
Services
Contributions of services are recognized if the services received
a. create or enhance nonfinancial assets
b. require specialized skills, are provided by individuals possessing those skills, and would typically need to
be purchased if not provided by donation.
Other funds held by NPOs

● Endowment Fund – classified into the following:
o Term endowment fund – under the donor’s restrictions, the NPO can use a portion of the principal
each period
o Regular endowment fund – under the donor’s restrictions, the NPO cannot spend any of the
principal
● Agency fund — funds held by the NPO acting as a custodian. Agency funds are recognized as liabilities.
For example, an educational institution may receive funds from the Commission on Higher Education
(CHED) to be disbursed as student loans.
● Plant fund — consists of the following:
o unexpended funds for the acquisition of plant assets
o funds for the renewal and replacement of plant assets
o funds for the retirement of indebtedness
o investment in plant assets
● Board-designated fund ('quasi-endowment') funds which are restricted at the sole discretion of the NPO's
governing board (i.e., Board of Trustees). Funds that are internally restricted are classified as unrestricted.
Only contributions with donor-imposed restrictions are classified as restricted.
1. Which of the following statements is correct?
a. The PFRSs are not applicable to non-profit organizations.
b. The financial statements of non-profit entities need not be audited

c. The preparation of a complete set of financial statements is optional for non-profit organizations.
d. Although the PFRSs are designed to be applied by business entities, they can also be applied by non-
profit organizations.
2. It is an organization that carries out socially desirable needs of the community or its members without
the intention of making profit.
a. NPO
b. NFP
c. NCO
d. All of these
3. According to PAS 1 Presentation of Financial Statements, a non-profit entity that applies the PFRSs
a. must adopt all of the terminologies and principles under the PFRSs without any exception.
b. need not present an additional statement of financial position in cases where the entity applies an
accounting policy retrospectively, restate its financial statements retrospectively, or make reclassification
adjustments during the period.
c. may need to amend the descriptions used for particular line items in the financial statements and for
the financial statements themselves.
d. may suffer negative consequences.
4. According to the Preface to International Financial Reporting Standards, non-profit entities
a. are prohibited from using the IFRSs
b. are discouraged from using the IFRSs
c. may find the IFRSs appropriate
d. none of these
5. Which of the following principles used by business entities is not applicable to non-profit organizations?
a. Accrual basis of accounting
b. Going concern
c. Use of fair value measurement
d. Disclosure of earnings per share
6. For a non-profit entity, the operating activities section of the statement of cash flows can be prepared
using
a. direct method
b. indirect method
c. a or b
d. not prepared
7. Which of the following financial statements are prepared by non-profit organizations?
I. Statement of Financial Position
II. Statement of Activities

III. Statement of Cash Flows

IV. Notes
a. I and II
b. I, III and IV
c. I, II and IV
d. All of these
8. In current practice, the financial reporting for non-profit organizations (choose the incorrect statement)
a. is essentially similar to that of business entities
b. focuses on fund accounting
c. focuses on the reporting entity concept
d. adopts P FRS principles
9. The statement of cash flows of a non-profit entity classifies cash flows into
a. program services and support activities
b. unrestricted, temporarily restricted, and permanently restricted
c. direct and indirect
d. operating, investing, and financing activities
10. Which of the following is not applicable to non-profit entities?
a. The statement of cash flows classifies movements in cash and cash equivalents during the period into
operating activities, investing activities and financing activities.
b. Use of accrual basis of accounting
c. Presenting cash flows from operating activities in the Statement of cash flows using either direct or
indirect method.
d. Measuring investments in equity securities using the lower of cost and market value.


1. Which of the following is not applicable to non-profit organizations?
a. Depreciating an equipment using the sum-of-the-years' digits method.
b. Amortizing an intangible asset with finite useful life
c. Recognizing impairment loss when an asset's carrying amount exceeds its recoverable amount.
d. Reporting extraordinary items in the financial statements
2. Which of the following is not applicable to non-profit organizations?

a. Accounting for combinations of entities using the principles provided under PFRS 3 Business
Combinations.
b. Measuring investments in marketable securities at fair value and recognizing changes in fair values as
unrealized gains and losses in the statement of activities.
c. Use of present value techniques for financial assets and financial liabilities.
d. Treating organization costs as assets to be amortized over a period not exceeding 5 years.
3. Which of the following may appropriately be applied by a non-profit organization when accounting for
a lease contract that does not qualify as a donation?
a. SFAS No. 116
b. SFAS No. 117
c. PFRS 16
d. All of these
4. According to SFAS No. 116, restricted contributions received by an NPO are recognized
a. when the performance of the condition is reasonably certain
b. only in the notes
c. as liabilities
d. as restricted revenues
5. According to SPAS No. 116, a restricted fund for the acquisition of a plant asset which was disbursed
during the period
a. increases temporarily restricted net assets
b. decreases unrestricted net assets
c. decreases temporarily restricted net assets
d. does not affect unrestricted net assets
6. What is the current-period effect of a fund received in the previous period that was restricted for the
payment of salaries of personnel which was totally disbursed in the current period?
a. net increase in temporarily restricted net assets
b. net decrease in unrestricted net assets
c. net decrease in permanently restricted net assets
d. zero net effect on unrestricted net assets
7. Unconditional promises to give contributions are recognized by the donee NPO
a. when the promise is received from the donor
b. when the condition becomes unconditional
c. when the performance of the condition is reasonably certain
d. b or c
8. Conditional promises to give are recognized by the donee NPO
a. when the promise is received from the donor

b. when the condition becomes unconditional

c. when the performance of the condition is reasonably certain.
d. b or c
9. Contributions are measured at
a. cost to the donor
b. fair value
c. lower of cost or fair value
d. fair value less costs to sell
10. Cash and other non-cash assets received as contributions are recognized by a non-profit organization as
a. asset
b. revenue
c. a and b
d. not recognized
C. LESSON WRAP-UP
you finished.
1 2 3 4 5 6 7 8 9 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6

_______________________________________________________________.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________

KEY TO CORRECTIONS
Activity 1 and 4.
1. Non-profit organization (NPO) - (also called not-for-profit entity ‘AFP' or noncommercial organization
'NCO') is one that carries out some socially desirable needs of the community or its members and whose
activities are not directed towards making profit.
2. Contributions can be classified as follows:
• Unrestricted
• Temporarily restricted
• Permanently restricted
Activity 3
1. D 7. D
2. D 8. C
3. C 9. D
4. C
5. D 10.B
6.C
Activity 5
1. B
2. D
3. B
4. D
5. C
6. A
7. A

Teachers’ Guide Module #25

8. D
9. B
10.B

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ACC 111 | Accounting for Government and Non-Profit Organizations

Student Activity Sheets Module #1

Name: _________________________________________________________________ Class number: _______

Lesson Title: Orientation Flexible Learning Materials:

2) Activity 1: What I Know Chart, part 1 (3 mins)

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

What learning materials are needed in flexible learning set-up?

2) Activity 3: Skill-building Activities (18 mins + 2 mins checking)

3) Activity 4: What I Know Chart, part 2 (2 mins)

4) Activity 5: Tips for an Effective Home Study

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Specific activities for this day:

These are standard instructions for teachers.

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

Lesson Title: Overview of Government Accounting Materials:

2) Activity 1: What I Know Chart, part 1 (3 mins)

2. Give two Basic Accounting and

3. What is the objective of the

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National Government Agencies (GAM

Objectives of Government Accounting:

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Name: _________________________________________________________________ Class number: _______

Financial Reporting System of the National Government

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Name: _________________________________________________________________ Class number: _______

The objective of GAM for NGAs is update the following:

Basic Accounting and Budget Reporting Principles

Code Fund Cluster

Qualitative Characteristics of Financial Reporting

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Name: _________________________________________________________________ Class number: _______

g) Substance over form j) Completeness

Components of General-Purpose Financial Statements

Elements of the Financial Statements

2) Activity 3: Skill-building Activities (18 mins + 2 mins checking)

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

3) Activity 4: What I Know Chart, part 2 (2 mins)

4) Activity 5: Check for Understanding (5 mins)

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

d. The presentation of budget information in the financial statements

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Name: _________________________________________________________________ Class number: _______

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

This document is the property of PHINMA EDUCATION

Name: _________________________________________________________________ Class number: _______

Lesson Title: The Budget Process Materials:

2) Activity 1: What I Know Chart, part 1 (3 mins)

What I Know Questions: What I Learned (Activity 4)

2. What are the four phases of the

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Name: _________________________________________________________________ Class number: _______

3. Expound the concept of

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