Depreciation on assets is charged on a straight-line basis over the useful life of the asset.
Depreciation is charged at rates calculated to allocate cost or valuation of the asset less any
estimated residual value over its remaining useful life.
The Municipalities derecognize items of property, plant and equipment and/or any
significant part of an asset upon disposal or when no future economic benefits or service
potential is expected from its continuing use. Any gain or loss arising on derecognition of
the asset (calculated as the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the surplus or deficit when the asset is derecognized.
Public Infrastructures were not previously recognized in the books. The LGUs availed of
the 5-year transitional provision for the recognition of the Public Infrastructure. For the
first year of implementation of the PPSAS (2015), the LGUs did not recognize the Public
Infrastructure in the books of accounts.
3.6 Impairment of non-financial assets
Impairment of non-cash-generating assets
The LGUs assess at each reporting date whether there is an indication that a non-cash-
generating asset may be impaired. If any indication exists, or when annual impairment
testing for an asset is required, the LGUs estimate the asset’s recoverable service amount.
An asset’s recoverable service amount is the higher of the non-cash generating asset’s fair
value less costs to sell and its value in use.
Where the carrying amount of an asset exceeds its recoverable service amount, the asset is
considered impaired and is written down to its recoverable service amount.
In assessing value in use, the LGUs had adopted the depreciation replacement cost
approach. Under this approach, the present value of the remaining service potential of an
asset is determined as the depreciated replacement cost of the asset. The depreciated
replacement cost is measured as the reproduction or replacement cost of the asset,
whichever is lower, less accumulated depreciation calculated on the basis of such cost, to
reflect the already consumed or expired service potential of the asset. In determining fair
value less costs to sell, the price of the assets in a binding agreement in an arm's length
transaction, adjusted for incremental costs that would be directly attributed to the disposal
of the asset is used. If there is no binding agreement, but the asset is traded on an active
market, fair value less cost to sell is the asset's market price less cost of disposal. If there
is no binding sale agreement or active market for an asset, the LGUs determine fair value
less cost to sell based on the best available information.
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