asset is derecognized. Therefore, depreciation does not cease when the asset
becomes idle or is retired from active use and held for disposal unless the
asset is fully depreciated. However, under usage methods of depreciation
the depreciation charge can be zero while there is no production.”
2.4. Moreover, Items IV and V of COA Circular 2015-008 dated November 23, 2015
provides for the accounting and reporting guidelines of Road Networks and this
includes the provision of depreciation expenses.
2.5. A review of the Trust Fund trial balance as of December 31, 2024, revealed that
PPE accounts totaling ₱17,379,465.70 had not been transferred to the General Fund
(Appendix 2). Our records indicate that these PPE accounts have remained in the
Trust Fund even way back in CY 2021 and prior years.
2.6. The failure to effect the transfer of the cost of the above PPE accounts from the
Trust Fund to the General Fund resulted in the overstatement of the PPE accounts in
the Trust Fund and understatement of the same accounts in the General Fund.
Moreover, non-provision of depreciation expenses for these PPEs understated the
total expenses in the General Fund by an undetermined amount, thus, adversely
affecting the fairness of presentation of the financial statements.
2.7. This observation was communicated to Management through Audit Observation
Memorandum (AOM) No. 2025-05(2024)-Bindoy dated February 14, 2025.
2.8. We recommended and Management agreed that the Municipal Mayor require
the Municipal Accountant to record the transfer of the various PPE accounts
under the Trust Fund to the General Fund. Corresponding depreciation
expenses should then be properly recorded in the books.
Biological Assets
3. Biological assets with a book balance of ₱11,741,439.97 as of December 31, 2024 is
not fairly presented in the financial statements in accordance with IPSAS No. 27
because no inventory report of the breeding stocks and trees with their
corresponding prevailing market prices as at reporting date was submitted by the
Municipal Agriculturist to the Municipal Accountant as required under COA
Circular 2016-004 dated September 30, 2016, thereby the existence and condition of
these assets as well as the reliability of the balance of the biological assets account
could not be ascertained.
3.1. Paragraph 16 of the PPSAS No. 27 requires that “A biological asset shall be
measured on initial recognition and at each reporting date at its fair value less costs
to sell, except for the case described in paragraph 34 where the fair value cannot be
measured reliably.” (Emphasis ours)
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