Professional Documents
Culture Documents
Govacc Chapter 6
Govacc Chapter 6
FINANCIAL ASSETS
Financial Instrument – any contract that gives rise to both a financial asset of one
entity and a financial liability or equity instrument of another entity.
a. Cash;
c. A contractual right to receive cash or another financial asset from another entity;
e. A contract that will or may be settled in the entity’s own equity instruments.
c. A contract that will or may be settled in the entity’s own equity instruments.
Equity instrument – is any contract that evidences a residual interest in the assets of
an entity after deducting all of its liabilities.
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Initial Recognition
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Initial Measurement
Financial assets are initially measured at fair value plus transactions, except for
financial assets at fair value through surplus or deficit whose transaction costs are
expensed.
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CASH AND CASH EQUIVALENTS
Cash – comprises cash on hand, cash in bank, and cash treasury accounts.
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 as follows:
Unreleased checks are not physically cancelled. At the start of the following year, the
adjusting entry above is reversed to recognize the availability of the checks for release.
This procedure does not apply to the “Cash – Modified Disbursement System (MDS)”
account because there is no actual cash with the Government Servicing Bank. Recall
that any unused NCA is reverted back to the National Government, and therefore, the
balance of the Cash – Modified Disbursement System (MDS)” account is zeroed-out at
the end of each period.
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. Cancelled
checks are reverted back to cash as follows:
For prior period MDS checks, the “Accumulated Surplus/(Deficit” account is debited.
This is because, again, the “Cash – Modified Disbursement System (MDS)” account is
zeroed-out at the end of each period.
For cancelled commercial checks, the “Cash In Bank – Local Currency, Current”
account is debited for both current year and prior period.
Petty Cash Fund (PCF) 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.
Guidelines:
a. 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.
b. The PCF Custodian shall be properly bonded whenever the established amount of
PCF exceeds P5,000.
“Bonded” means an insurance shall be taken on the custodian. In the event that the custodian misuses
the funds, the entity can claim from the insurance company, and the insurance company in turn will go
after the custodian.
c. 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.
d. 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.
g. 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.
Illustration:
After careful estimates of recurring monthly petty expenses, the Head of Entity A
approves the establishment of a P50,000 petty cash fund.
Just like the accounting by business entities, no journal entries are made as
disbursements are made out of the PCF. Journal entries will be made when the PCF is
(a) replenished or (b) adjusted at the end of the period for unreplenished expenses.
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.
Cash shortage
Date Due from Officers and Employees XXX
Advances for/to… (Approriate account) XXX
To recognize cash shortage of disbursing officer
Cash overage
Dishonored Checks
A dishonored checks 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.
Journal entries
Dishonored checks are recorded to the “Other receivables” account as follows:
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:
a. 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.
b. 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.
COA Auditor;
Head of Agency;
Accounting Division; and
Bank, if necessary
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.
Only debt instruments acquired within 3 months before their scheduled maturity date
can qualify as cash equivalents.
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RECEIVABLES
Receivables represents claims for cash or other assets from other entities. Examples:
a. Accounts receivable
b. Notes receivable
c. Loans receivable
d. Other receivables, such as, interest receivable; due from employees/officer/ other
NGAs; lease receivables, dividends receivable
Receivables are initially measured at fair value plus transaction costs and
subsequently measured at amortized cost.
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INVESTMENTS
a. Financial assets at fair value through surplus or deficit – is one that is either:
a. Held-for-trading; or
Subsequent Measurement – Fair value; changes in fair value are recognized in equity
Investments in unquoted equity instruments whose fair value cannot be reliably measured are measured
at cost.
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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:
The carrying amount of the asset shall be reduced either directly or through the use of
an allowance account.
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a. The contractual rights to the cash flows from the financial asset expire or are waived;
or
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 assets are
relinquished.
The derecognition of financial assets is subject to the provisions of the State Audit Code
of the Philippines (P.D. No. 1445) on writing off of receivables and other policies issued
by the COA.
CHAPTER 7
INVENTORIES
a. Haeld for sale or distribution in the ordinary course of operations (Finished goods);
a. Inventory Held for Sale (e.g. medicines for sale in government pharmacies)
b. Inventory Held for Distribution (e.g. rice and other welfare goods held for distribution)
Measurement
a. Purchase cost, excluding trade discounts, rebates, and other similar deductions in
purchase price.
b. 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.)
c. Administrative overheads
Net Realizable Value (NRV) is estimated selling price less estimated costs of
completion and estimated setting/disposal costs.
Current replacement cost is the cost the entity would incur to acquire the asset on the
reporting date.
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COST FORMULAS
Cost of goods sold and cost of inventories on hand are determined using the following
cost formulas:
a. 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.
b. 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.
Government entities shall use the perpetual inventory system. Under this system,
purchases, sales, and other transactions affecting inventory are recorded in the
“inventory” and cost of sales” accounts, as appropriate.
However, purchases of supplies and materials out of the petty cash fund for immediate
use or on emergency cases are charged directly as expense.
The FIFO cost formula and the periodic inventory system are not used by government
entities.
Recognition as an Expense
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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.
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.
Recall that a canvass from at least 3 suppliers is required for purchases amounting to
P1,000 and above.
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.
4. The Property Inspector inspect the conformance of the delivered items with the
specification in both the PO and DR and indicates the result of the inspection 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
amount of all receipts and issuances of inventory, as well as the available balance at
any given point in time.
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:
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 to report the movement and
status of accountable forms in the possession of an officer.
CHAPTER 8
AGRICULTURE
Agriculture means farming or the process of producing crops and raising livestocks. In
this chapter, we will learn the accounting principles used for assets, liabilities, income
and expenses resulting from agricultural activities.
Agricultural Produce – is the harvested product of the entity’s biological asset or the
cessation of a biological asset’s life processes.
Examples:
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Recognition
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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 other basis.
The gain arising from the initial measurement is recognized in surplus or deficit.
Cost to Sell – are the incremental costs directly attributable to the disposal of an
asset, excluding finance costs and income taxes.
Fair value xx
If there are more than one active markets, the entity shall use the price in the
market expected to be used.
If there is no active market, the entity shall estimate the market price based on
one of the following:
i. 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;
ii. Market prices for similar assets with adjustments to reflect differences;
iii. Sector benchmarks, such as the value an orchard expressed per export
tray, bushel, or hectare, and the value of cattle expressed per kilogram of
meat; and
iv. 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.
d. Biological assets attached to land (e.g. trees in a plantation forest) may not have a
separate market but an active market may exist for the combined assets (i.e., biological
assets, raw land, and land improvements) as a package. In such case, the fair value of
the raw land and land improvements may be deducted from the fair value of the
combined assets to arrive at the fair value of the biological assets.
e. 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.
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DISCLOSURES
a. 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.
b. Consumable and Bearer biological assets and biological assets held for sale and held
for distribution at no charge or for a nominal charge.
Examples: livestock intended for production of meat; annual crops like maize and
rice; and trees being grown for lumber.
Bearer Biological Assets – are those that are self-generating and are used
repeatedly for more than one year.
Examples: dairy cattle held for the production of milk; fruit trees; and trees from
which firewood is harvested while the tree remains.
d. The amount of change in fair value less costs to sell due to physical changes and
due to price changes.
a. Entity A purchases five breeding stocks at P3,000 each, equal to the fair value less
costs to sell (FVLCS) at the acquisition date. The journal entry is as follows:
Date Breeding Stocks 15,000
Cash in Bank – Local Currency,
Current Account 15,000
b. Ten breeding stocks are born. The FVLCS on date of birth is P2,000. The journal
entry is as follows:
On January 1, 20x1, Entity A has five 2-year old breeding stocks with total carrying
amount of P25,000.
a. On July 1, 20x1, ten breeding stocks were born. The FVLCS on this date is P2,000
each.
b. On July 1, 20x1, two 2-year old breeding stocks were purchased for P5,100 each
equal to the FVLCS on this date.
c. On December 31, 20x1, three breeding stocks were born. The FVLCS on this date is
P2,100 each.
Age FVLCS
new P2,100
0.5 yr. old P2,150
2 yrs. old P5,200
2.5 yrs. old P5,400
3 yrs. old P5,700
Requirements: Compute for the change in FVLCS (a) due to price change and (b) due
to physical change.
Formula:
Formula:
(FVLCS, end. Age end.) – (FVLCS, end. Age beg.) x Qty + FVLCS of newborn at date
of birth