2015, and COA Circular No. 2020-006 dated January 31, 2020, to ensure
that all road network assets are accurately reflected in the financial
statements and comply with established accounting and reporting
standards.
Unreliable Computation of Accumulated Depreciation Expense for Road Networks
2. The depreciation expense for the Road Network, with an accumulated
depreciation balance of ₱471,365,166.38, was calculated using a uniform estimated
useful life of ten years and a 10% salvage value for the total cost rather than for
each road component, contrary to COA Circular No. 2015-008 and paragraph 73
IPSAS 17, thus raising concerns about the reliability of the balance and resulting
in an undetermined amount of discrepancy.
2.1 Items IV and V of COA Circular No. 2015-008 dated November 23, 2015
provide, among others, that the components of local roads should be segregated,
and the cost of each component must be recognized individually. Accordingly,
separate subsidiary ledgers must be maintained for the road and its components,
namely: (a) road lot, (b) road pavement, (c) drainage and slope protection
structures and (d) other miscellaneous structures. Each depreciable component
of the road network, except for the road lot component, shall be depreciated
separately using the straight-line method of depreciation. In addition, no
residual value shall be applied to the depreciable components of the road
network system. The useful life of the local roads should be determined based
on the range prescribed by COA, taking into account factors such as design,
users, and volume of usage.
2.2 Additionally, paragraph 73 of the IPSAS 17 defines the useful life of an asset in
terms of its expected utility to the entity. Estimating the useful life of an asset
involves judgment based on the entity’s experience with similar assets.
2.3 To support the development of local road asset management and ensure that
accounting practices in local government units align with IPSAS, the
Department of the Interior and Local Government (DILG) issued Memorandum
Circular No. 2020-155 dated November 16, 2020, on the adoption of the Local
Road Asset Management Manual (LRAMM).
2.4 Module 2, page 60 of the Manual on the determination of the remaining useful
life of the road asset, requires the Provincial Accountant to determine the
remaining useful life of the road asset taking into consideration its condition.
Ideally, the design life of road assets should be used as a basis for depreciation.
The useful life guideline may be based on the Department of Public Works and
Highways (DPWH) Department Order No. 176 series of 2015, as follows:
Estimated
Public Infrastructure Assets
Useful Life
Road Networks:
• Concrete 20
• Asphalt 10
Bridges (Concrete or Steel) 40
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