modified, such an exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability.
Reversion
Section 98 of P.D. No. 1445 provides that any unliquidated balances of accounts
payable in the books may be reverted to the unappropriated surplus of the general
fund, provided that these have been outstanding for two years or more and against
which no actual claims, administrative or judicial, have been filed or which are not
covered by perfected contracts on record.
Further, DBM-COA Joint Circular No. 99-06 dated November 13, 1999 requires
the reversion of all documented accounts payables that remained outstanding for
two years, except for on-going capital outlay projects, as well as all undocumented
and unliquidated payables, irrespective of the year they were incurred.
3.7 Inventories
Inventory is measured at cost upon initial recognition. To the extent that inventory
was received through non-exchange transactions (at no cost or at a nominal cost),
the cost of the inventory is its fair value at the date of acquisition.
Costs incurred in bringing each product to its present location and conditions are
accounted for. Finished goods and work in progress: cost of direct materials and
labor and a proportion of manufacturing overheads based on the normal operating
capacity but excluding borrowing costs.
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. Inventory is recognized as an expense
when it is deployed for utilization or consumption in the ordinary course of
operations of the Province.
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.
It 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 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 the construction of the asset is complete. Further,
borrowing costs are charged to the statement of financial performance.
19
