3.5 Property, plant, and equipment
All property, plant, and equipment are stated at cost less accumulated
depreciation and impairment losses. Cost includes expenditure that is directly
attributable to the acquisition of the items. When significant parts of property,
plant, and equipment are required to be replaced at intervals, the LGUs recognize
such parts as individual assets with specific useful lives and depreciate them
accordingly. Likewise, when a major inspection is performed, its cost is
recognized in the carrying amount of the plant and equipment as a replacement if
the recognition criteria are satisfied. All other repair and maintenance costs are
recognized in surplus or deficit as incurred. Where an asset is acquired in a non-
exchange transaction for nil or nominal consideration the asset is initially
measured at its fair value.
Depreciation on assets is charged on a straight-line basis over the useful life of
the asset.
Depreciation is charged at rates calculated to allocate the cost or valuation of the
asset less any estimated residual value over its remaining useful life.
Leased assets may consist of vehicles and machinery. The assets’ residual values
and useful lives are reviewed, and adjusted prospectively, if appropriate, at the
end of each reporting period. An asset’s carrying amount is written down
immediately to its recoverable amount, or recoverable service amount if the
asset’s carrying amount is greater than its estimated recoverable amount or
recoverable service amount. The Municipalities derecognize items of property,
plant and equipment, and/or any significant part of an asset upon disposal or
when no future economic benefits or service potential is expected from its
continuing use. Any gain or loss arising on the derecognition of the asset
(calculated as the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the surplus or deficit when the asset is
derecognized.
Public Infrastructures were not previously recognized in the books. The LGUs
availed of the 5-year transitional provision for the recognition of the Public
Infrastructure. For the first year of implementation of the PPSAS (2015), the
LGUs did not recognize the Public Infrastructure in the books of accounts.
3.6 Impairment of non-financial assets
Impairment of cash-generating assets
At each reporting date, the LGUs assess whether there is an indication that an
asset may be impaired. If any indication exists, or when annual impairment
testing for an asset is required, the LGUs estimate the asset’s recoverable amount.
An asset’s recoverable amount is the higher of an asset’s or cash-generating
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