After initial recognition, inventory is measured at the lower of cost and net
realizable value. However, to the extent that a class of inventory is distributed or
deployed at no charge or for a nominal charge, that class of inventory is measured
at the lower of cost and current replacement cost.
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 they are deployed for utilization or consumption in the ordinary
course of LGU operations.
The LGU does not recognize a contingent liability, but discloses details of any
contingencies in the notes to the financial statements unless the possibility of an
outflow of resources embodying economic benefits or service potential is remote.
3.8 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 in surplus or deficit.
3.9 Borrowing costs
Borrowing costs are capitalized against qualifying assets as part of PPE. 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.
3.10 Service concession arrangements
The LGU analyses all aspects of service concession arrangements that it enters into
in determining the appropriate accounting treatment and disclosure requirements.
In particular, where a private party contributes an asset to the arrangement, the LGU
recognizes that asset when, and only when, it controls or regulates the services the
operator must provide together with the asset, to whom it must provide them, and
at what price. In the case of assets other than ’whole-of-life’ assets, it controls,
through ownership, beneficial entitlement or otherwise – any significant residual
interest in the asset at the end of the arrangement. Any assets so recognized are
measured at their fair value. To the extent that an asset has been recognized, the
LGU also recognizes a corresponding liability, adjusted by a cash consideration
paid or received.
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