incurred. Capitalization ceases when construction of the asset is complete.
Further, borrowing costs are charged to the statement of financial performance.
3.13 Related parties
The LGUs regard a related party as a person or an entity with the ability to exert
control individually or jointly, or to exercise significant influence over the LGU,
or vice versa. Members of key management are regarded as related parties and
comprise the Mayor, Vice-Mayor, Sanggunian Member, Committee Officials and
Members, Accountant, Treasurer, Budget Officer, and all Chiefs of
Departments/Divisions.
3.14 Budget information
The annual budget is prepared on the modified cash basis, that is, all planned
costs and income are presented in a single statement to determine the needs of the
LGU. As a result of the adoption of the Modified cash basis for budgeting
purposes, there are basis, timing or entity differences that would require
reconciliation between the actual comparable amounts and the amounts presented
as a separate additional financial statement in the statement of comparison of
budget and actual amounts. Explanatory comments are provided in the notes to
the annual financial statements; first, the reasons for overall growth or decline in
the budget are stated, followed by details of overspending or underspending on
line items.
3.15 Significant judgments and sources of estimation uncertainty
Judgments
In the process of applying the LGUs’ accounting policies, management has made
judgments, which have the most significant effect on the amounts recognized in
the consolidated financial statements.
Operating lease commitments – LGU as lessor
The LGU have entered into property leases of certain of its properties. The LGUs
have determined, based on an evaluation of the terms and conditions of the
arrangements, (such as the lease term not constituting a substantial portion of the
economic life of the commercial property) that it retains all the significant risks
and rewards of ownership of the properties and accounts for the contracts as
operating leases.
23
