Net realizable value is the estimated selling price in the ordinary course of
operations, less the estimated costs of completion and the estimated costs
necessary to make the sale, exchange, or distribution. Inventories are recognized
as an expense when deployed for utilization or consumption in the ordinary
course of operations of the LGUs.
3.10 Provisions
Provisions are recognized when the LGUs have a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of resources
embodying economic benefits or service potential will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation.
Where the LGUs expect some or all of a provision to be reimbursed, for example,
under an insurance contract, the reimbursement is recognized as a separate asset
only when the reimbursement is virtually certain.
The expense relating to any provision is presented in the statement of financial
performance net of any reimbursement.
Rehabilitation liability
Rehabilitation costs are provided at the present value of expected costs to settle
the obligation using estimated cash flows and are recognized as part of the cost of
that particular asset. The cash flows are discounted at a current rate that reflects
the risks specific to the rehabilitation liability. The unwinding of the discount is
expensed as incurred and recognized in the statement of financial performance as
a finance cost. The estimated future costs of decommissioning are reviewed
annually and adjusted as appropriate. Changes in the estimated future costs or in
the discount rate applied are added to or deducted from the cost of the asset.
3.11 Changes in accounting policies and estimates
The LGUs recognize the effects of changes in accounting policy retrospectively.
The effects of changes in accounting policy are applied prospectively if
retrospective application is impractical.
The LGUs recognize the effects of changes in accounting estimates prospectively
by including in surplus or deficit.
3.12 Borrowing costs
Borrowing costs are capitalized against qualifying assets as part of property, plant
and equipment. Such borrowing costs are capitalized over the period during
which the asset is being acquired or constructed and borrowings have been
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