b) Any costs directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner intended
by management.
c) The initial estimate of the costs of dismantling and removing the item and
restoring the site on which it is located, the obligation for which an entity
incurs either when the item is acquired, or as a consequence of having used
the item during a particular period for purposes other than to produce
inventories during that period.
8.2 Our post-audit of Disbursement Vouchers (DVs) revealed that the Municipality
paid a total of ₱480,012.50 for capital gains tax, documentary stamp tax, and
transfer tax to process the title of the lot acquired by the Municipality. The details
of these transactions are presented below:
Date DV # Particulars Amount
9/03/24 101-24-09-3763 Payment for Documentary Stamp Tax ₱ 87,750.00
for the purchase of lot
9/03/24 101-24-09-3764 Payment for Capital Gains Tax for the 351,000.00
purchase of lot
9/27/24 101-24-09-4113 Payment for Transfer Tax for the 41,262.50
purchase of lot
Total ₱ 480,012.50
8.3 A review of the Journal Entry Vouchers (JEVs) for the above transactions revealed
that they were recorded under the "Other Maintenance and Operating Expenses"
account rather than the "Land" account. During an interview, the Municipal
Accountant acknowledged that these transactions were classified as expenses
because, according to the Municipality's budget structure, they fall under
Maintenance and Operating Expenses.
8.4 In IPSAS 17, capital gains tax paid by the buyer isn’t explicitly recognized as an
element of cost for PPE. This is because capital gains tax is generally a tax on the
seller, not the buyer. However, if the tax is imposed directly on the buyer as an
unavoidable cost of acquiring the asset, similar to a property transfer tax or
documentary stamp tax, it should be classified as a non-refundable tax and
included in the asset’s cost.
8.5 Moreover, the capital gains tax, documentary stamp tax, and property transfer tax
constitute directly attributable costs associated with the acquisition of the land.
These taxes are mandatory payments required to transfer the property title to the
Municipality. Additionally, as non-refundable levies, they cannot be recovered at
a later stage. Therefore, in the subject transactions, these taxes should be
recognized as part of the land’s acquisition cost.
53
