3.13 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 LGU’s needs. 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.
3.14 Significant judgments and sources of estimation uncertainty
Judgments
In the process of applying the LGU’s 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 has entered into property leases for certain of its properties. The LGU has
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.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year,
are described below. The LGU based its assumptions and estimates on parameters
available when the consolidated financial statements were prepared. However, existing
circumstances and assumptions about future developments may change due to market
changes or circumstances arising beyond the LGU’s control. Such changes are reflected
in the assumptions when they occur.
Useful lives and residual values
The useful lives and residual values of assets are assessed using the following
indicators to inform potential future use and value from disposal:
(a) The condition of the asset based on the assessment of experts employed by the LGU;
(b) The nature of the asset, its susceptibility and adaptability to changes in technology
and processes;
(c) The nature of the processes in which the asset is deployed; and
(d) Changes in the market in relation to the asset.
21
