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 LGU operations.
3.9 Provisions
Provisions are recognized when the LGU has a present obligation (legal or constructive)
because of a past event, an outflow of resources embodying economic benefits or service
potential will probably be required to settle the obligation, and a reliable estimate can be
made of the amount of the obligation.
Where the LGU expects 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 the discount rate applied are added
to or deducted from the cost of the asset.
3.10 Changes in accounting policies and estimates
The LGU recognizes the effects of changes in accounting policy retrospectively. The
effects of changes in accounting policy are applied prospectively if retrospective
application is impractical.
The LGU recognizes the effects of changes in accounting estimates prospectively by
including them in surplus or deficit.
3.11 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 incurred. Capitalization
ceases when construction of the asset is complete. Further, borrowing costs are charged
to the statement of financial performance.
3.12 Related parties
The LGU regards 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 and
Vice-Mayor, Sanggunian Members, Committee Officials and Members, Accountant,
Treasurer, Budget Officer, and all Chiefs of Departments/Divisions.
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