The LGUs establish an allowance for impairment that represents its estimate of
anticipated losses in respect of receivables.
The average credit period on services rendered is 30 days from date of invoice.
Interest is raised at the three-month government bond rate plus 1% on any unpaid
accounts after the due date. The LGUs provided fully for all receivables
outstanding over 365 days where there was no evidence of expected recovery.
Receivables up to 365 days are provided for based on estimated irrecoverable
amounts, determined by reference to past default experience.
Cash and cash equivalents
The LGUs limit its exposure to credit risk by investing cash and cash equivalents
with only reputable financial institutions that have a sound credit rating, and
within specific guidelines set in accordance with the Sanggunian’s approved
investment policy. Consequently, the LGUs do not consider there to be any
significant exposure to credit risk.
Liquidity risk
Liquidity risk is the risk of the LGUs not being able to meet its obligations as
they fall due. The LGUs’ approach to managing liquidity risk is to ensure that
sufficient liquidity is available to meet its liabilities when due, without incurring
unacceptable losses or risking damage to the LGUs’ reputation.
The LGUs ensure that it has sufficient cash on demand to meet expected
operating expenses through the use of cash flow forecasts.
Capital management
The primary objective of managing the LGUs’ capital is to ensure that there is
sufficient cash available to support the LGUs’ funding requirements, including
capital expenditure, to ensure that the LGUs remain financially sound. The LGUs
monitor capital using a gearing ratio, which is net debt, divided by total capital,
plus net debt. In a capital intensive industry, a gearing ratio of 54.5% or less can
be considered reasonable. Included in net debt are interests bearing loans and
borrowings, payables, less investments.
Currency risk
The LGUs are exposed to foreign-currency risk through the importation of goods
and services, either directly or indirectly, through the award of contracts to local
importers. The LGUs manage any material direct exposure to foreign-currency
risk by entering into forward exchange contracts. The LGUs manage its indirect
exposure by requiring the local importer to take out a forward exchange contract
at the time of procurement, in order to predetermine the peso value of the
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