SOP Library
SOP NO:
FS-GP08
(List of Exhibits/Attachments)
Missi
on
:
Finance and Administration
Area:
Financial Services (FS)
Activity:
General Accounting Plan (FS-GP)
Title:
Depreciation Accounting
Date Approved/Issued:
08/16/1989
Date Effective:
08/01/1989
Digest:
I. TERMS OF REFERENCE
A. Rationale
B. Objective
C. Scope
D. Basis
II. IMPLEMENTING GUIDELINES
A. Definition
B. General Policies
1. NFA properties with a life expectancy of more than one year and a value of P1,500.00 and above per COA Circular No. 86-200 B shall be taken up as a fixed asset for
depreciation
purposes.
2. The Property Monitoring and Maintenance Section (PMMS) of the Property and Supply Management Division (PSMD) of the General Services Directorate (GSD)/Property Units of Field Offices shall be held responsible for monitoring all movements of fixed assets and the proper documentation of all fixed assets transactions as well as reporting the same to COAD-DAB/Accounting units for the proper allocation and charging of
depreciation
expenses to the concerned offices every accounting period.
3. The Directorate for Accounting and Budget (DAB) and all Fixed Accounting Units shall strictly adhere to the policies on
depreciation accounting
as provided herein to maintain an accurate book value of fixed assets.
4. Primary accountability for the fixed asset shall be vested upon the accountable officer/employee to whom the fixed asset was issued.
5. The Heads of Office shall be held primarily responsible over the management, expending, utilization of the NFA's fixed assets in accordance with the existing policies and regulations, and safeguarding against, loss or wastage through illegal or improper disposition.
C.
Accounting for
Depreciation
of Fixed Assets
1. The Central Office Accounting Division (COAD) of the DAB and all Field Office Accounting Units shall be responsible for the determination of fixed assets
depreciation
s. A Journal Voucher (JV) shall be prepared supported by the working paper computations of fixed assets depreciation duly certified correct by the Division Chief, COAD/DAB/Regional/Provincial Accountant. The JV shall be processed thru the usual JV processing system.
2.
Depreciation
charges of fixed assets shall be computed and recorded monthly. However,
depreciation
on assets accidentally destroyed, lost, retired, transferred to other offices shall be computed/updated at the time of their occurrence to determine the net book value of the asset, either for reclassification to junked assets to account upon retirement, for transfer to account of other offices, or for determining the amount of loss sustained for purposes of filing insurance claims.
3.
Depreciation
charges shall be treated as operating/period cost to be reflected in the determination of results of operations for the accounting period being reported.
D.
When to Recognize Depreciation
In recognizing depreciation on Fixed Assets, the "Succeeding Month" basis shall be used to be applied as follows:
1.
Purchase, Additions and Donations
Purchases/additions/donations received and issued to users during the month shall be depreciated on the succeeding month following the receipt and issuance. Depreciation shall be charged to the user of the asset.
2.
Constructed Assets
Constructed assets when ready for use or occupancy during the month shall be depreciated on the succeeding month. Asset which is still under construction but is already being used shall not be depreciated. Asset constructed under a contract shall be depreciated only when the asset has been turned over to NFA.
3.
Transfer of Assets Among Offices
Transfer of assets among offices shall refer to transfers of fixed assets made from Central Office to branch or from one Branch to another.
When an asset is transferred from one office to another during the month, the
depreciation
charges for that same month shall be charged/recorded at the transferring office/origin.
Depreciation
charges of the asset transferred for the succeeding month shall be charged/recorded at the receiving office.
The above provision shall be applicable only if the asset transferred has been used by the transferring office for at least two (2) months, otherwise, the provisions for depreciating new asset acquisition shall apply.
In transferring assets from one office to another, the cost of the asset including the related accumulated depreciation, if any, shall also be transferred.
E. Factors in Determining Depreciation
1.
Depreciation
charges shall be based on the total asset cost. Total asset cost would mean the total cash outlay for purchased or constructed/fabricated assets or the assessed fair market value for donated assets plus all other incidental expenditures incurred in preparing the asset for the purpose for which it was acquired such as the following:
a. Insurance in transit
b. Freight and cartage
c. Title examination fee
d. Taxes and custom duties
e. Brokerage fee
f. Installation costs
g. Cost of test-runs/break-ins
2.
Depreciation
charges shall be computed using the Straight Line Method of
depreciation
which may be expressed in a formula as follows:
C - SV
D = ________
L
Where: D =
Depreciation
expense for the period
C = Cost of the asset
SV = Salvage value of the asset
L = Estimated service life of the asset
3. The salvage value of all NFA fixed assets shall be at a nominal cost of P1.00 per unit. Salvage value refers to the residual value of a depreciable asset which can reasonably be expected to be realized upon retirement of an asset.
4. The estimated service life of NFA fixed assets shall be determined by a committee composed of the representatives from the following Directorates and Offices:
a. Directorate for Accounting and Budget
b. General Services Directorate
c. Management Services Directorate
d. Technical Services Directorate
e. Internal Audit Directorate
f. Commission on Audit (observer)
For NFA purposes, service life shall refer to the useful life of a property item which maybe expressed in terms of an estimated time factor such as a period of months or years.
Please refer to "
Annex A
" for the estimated
service life of NFA assets
.
F.
Expenditures Incurred During the Service Life of Property Items
Expenditures incurred during the service life of fixed assets may be classified as to major or minor depending on the materiality of cost expended and its effect on the useful life of the asset as well as on its working capacity. The responsibility for determining whether an expenditure for maintaining/restoring/improving the useful conditions of a fixed asset is major or minor, shall be vested the PSMD-GSD/Property Units.
As basis for the proper recording of these expenditures by COAD/DAB/Accounting units and for purposes of depreciating capitalized costs, the PSMD-GSD/Property Units shall specify in the disbursement voucher for payment of these expenditures and/or on the Request and Issuance Voucher (RIV)/Job request forms, whether the same is minor or major.
1.
Addition
This shall refer to the enlargements and extensions of existing facilities such as adding a new plant wing or another compartment to an existing building.
Major additions to assets shall be capitalized and depreciated over the remaining service life of the principal asset to which the additions were made.
Minor additions shall be charged to repair and maintenance expenses.
2.
Replacement and Renewals
This shall involve substitutions of an old fixed asset unit or part of a unit with a new one having the same functions, quality and usefulness as the unit or part replaced when originally acquired such as changing the old engine of a vehicle or a machinery with a new one.
For major replacement and renewals, the cost and accumulated
depreciation
applicable to the unit or part replaced shall be removed from the account. Net book value of the part replaced, if not fully depreciated, shall be recorded in the junked assets account.
The cost of the replaced part shall be separated from the value of the principal asset as determined by the PMSD-GSD/Property units based on the part's estimated degree of importance in relation to the working capacity of the asset as a whole.
The cost of replacement part shall be capitalized and depreciated over the remaining service life of the principal asset to which the replacement was made.
Minor replacements and renewals shall be charged to expenses.
3.
Repairs
This shall refer to expenditures incurred to restore fixed assets to a fit condition upon their breakdown.
Major repairs are extraordinary in nature and usually benefits future operations by extending the service life of the asset and by increasing the asset's usefulness. The cost of major repairs shall be capitalized by debiting the asset account of the amount expended. The asset repaired shall be depreciated over its new estimated service life based on the new asset book value if the repairs have extended the life of asset, otherwise, the capitalized repair cost shall be depreciated over the remaining service life of the asset.
Minor repairs shall be charged to expenses.
G.
D
i
sposition of Used Fixed Assets
1.
Retirement of Fixed Assets
Fixed assets which are fully depreciated and are no longer useful to NFA, (made unserviceable due to ordinary wear and tear during operations) shall be retired and removed from the books of accounts. Retired assets, if not immediately disposed shall be recorded in the ledger accounts, junked assets. Retirement of fixed assets shall be effected only based on duly approved inventory and inspection report to relinquish the accountability from the accountable officer/employee. A copy of the IIR shall be furnished to COAD-DAB/Accounting unit to reclassify the fixed assets account to junked assets.
2.
Fully Depreciated Serviceable Assets
Fixed assets which are fully depreciated but are still serviceable and remains useful to the operations of NFA shall still be included as part of the gross fixed assets account as well as the related accumulated
depreciation
as part of the total accumulated depreciations. However, the total cost of fully depreciated assets shall be disclosed in a footnote to the financial statements.
3.
Accidentally Destroyed/Lost Assets
This shall refer to those fixed assets which were destroyed or lost due to fortuitous event. Assets destroyed/lost, although not fully depreciated shall be retired and consequently removed from the account to be effected based on duly approved IIR (for destroyed assets)/police report (for robbery/theft)/Fire Department Report (for burnt assets) and upon issuance of the Corporate Auditor of a Relief of Accountability to relieve responsible officer/employee of their accountability. Insurance claims shall be accordingly fled with the GSIS thru Grainscor by PMSD-GSD in coordination with DTFM to indemnify NFA of the damages/losses incurred. A copy of the corresponding report and insurance billing shall be furnished by DTFM to COAD-DAB to take up the destroyed/lost assets net book value (representing amount of loss sustained by NFA) as insurance claim receivables.
4.
Destroyed/Lost Assets Due to Personnel's Negligence
This shall refer to those fixed assets which were destroyed or lost due to the accountable officer's/employee's negligence. Negligence shall constitute those events or occurrence resulting to the destruction or lost of fixed assets other than those which are considered fortuitous such as fire, weather calamities or verified theft/robbery.
The accountable personnel shall be liable for the damage/loss of fixed asset under his/her possession and shall be made to restitute the lost asset or made to pay the corresponding replacement cost. Fixed assets lost shall be removed from the asset account including the related accumulated
depreciation
account and the liability of the accountable officer/employee shall be set-up based on the findings of investigations conducted by NFA investigators.
H.
Internal Control
1. A
subsidiary ledger card
shall be maintained by COAD-DAB/Accounting unit for each item of fixed assets. The
subsidiary ledger card
shall provide for the recording of acquisitions and disposals of assets and the related depreciation charges, as well as capitalized repair expenditures. It shall also reflect the asset's net book value.
2. The COAD-DAB/Accounting units shall reconcile quarterly the total
subsidiary ledger card
balances against the General Ledger card balances of the assets. Book adjustments based on the reconciliation statements shall be instituted when necessary and after proper approval from authorities concerned.
3. DAB-BAS/Accounting unit in coordination with GSD-PMS/Supply Officer, shall see to it that the monthly balances of the subsidiary ledgers tallies with the history card balances.
4. Monthly and quarterly report requirements as discussed in the SOP on Fixed Asset Inventory, Monitoring and Control System shall be submitted, copy furnished COAD-DAB/Accounting units to update/correct fixed assets recording for
depreciation
purposes.
5. Disposal and write-off of properties shall be made only upon proper authorization as specified in the specifications of authority. Simultaneous to property disposition, which shall be covered by IIR, the related accumulated
depreciation
account shall be written-off.
I.
Accounting Treatment
1. To record acquisition of fixed assets:
DR: Fixed Assets/BOCA xxx
CR: Vouchers Payable xxx
DR: Vouchers Payable xxx
CR: Cash-Other Banks, Current xxx
2. To record provisions for depreciation:
DR: Depreciation Expenses xxx
CR: Accumulated Depreciation xxx
3. To record transfers of assets (from C.O. to Regional/Provincial Offices)
Central Office
DR/CR: BOCA-Fixed Assets xxx xxx
DR: Accumulated Depreciation xxx
DR: Fixed Assets (xxx)
Regional Office
For R.O. Use:
DR: Fixed Assets xxx
DR/CR: COCA-Fixed Assets xxx xxx
CR: Accumulated Depreciation xxx
For P.O. Use:
DR/CR: POA-Fixed Assets xxx xxx
DR: Accumulated Depreciation xxx
DR: Fixed Assets (xxx)
Provincial Office
DR:
Fixed Assets
xxx
DR/CR:ROA-Fixed Assets xxx xxx
CR: Accumulated Depreciation xxx
Note: All transfers of Fixed Assets shall be thru DR negative entry to differentiate it from purchases.
4. To record additions to Fixed Assets
Major Additions
DR: Fixed Assets xxx
CR: Vouchers Payable xxx
To compute for the revised
depreciation
after the additions
:
Original Cost = Service Life = xxx
Addition Cost = Remaining Service Life =
xxx
Revised Annual Depreciation xxx
===
Minor Additions
DR: Repairs and Maintenance xxx
CR: Vouchers Payable xxx
5. To record replacements or renewals:
Major replacements or renewals
a. To remove the cost of asset part replaced:
DR: Accumulated Depreciation xxx
DR: Junked Assets xxx
CR: Fixed Assets xxx
b. To record the cost of asset part replacement:
DR: Fixed Assets xxx
CR: Vouchers Payable xxx
To compute for the revised
depreciation
after the replacement or renewal:
(Original cost - Cost of asset part replaced) divided by service lilfe = xxx
Cost of Asset Part Replacement divided by remaining
service life =
xxx
Revised annual depreciation = xxx
===
Minor Replacements or Renewals
DR: Repairs and Maintenance xxx
CR: Vouchers Payable xxx
6. To record Repairs on Fixed Assets:
Major Repairs
DR: Fixed Assets xxx
CR: Vouchers Payable xxx
To compute for the revised
depreciation
after repairs for betterment:
Original Cost divided by service life = xxx
Repair cost divided by remaining service life =
xxx
Revised Annual Depreciation = xxx
===
To compute for the revised
depreciation
after repairs prolonging the life of assets:
Original Cost xxx
Add: Repair Cost
xxx
New Cost xxx
Less: Accumulated Depreciation
xxx
New Book Value xxx
New Estimated Service Life divided by x
_____________
Revised Annual Depreciation xxx
=============
Minor Repairs
DR: Repairs and Maintenance xxx
CR: Vouchers Payable xxx
7. To record retirement of Fixed Assets:
DR: Junked Assets xxx
CR: Accumulated Depreciation xxx
CR: Fixed Assets xxx
8. To record accidentally destroyed/lost assets:
a. To update the accumulated
depreciation
of the asset:
DR: Depreciation Expense xxx
CR: Accumulated Depreciation xxx
b. To set-up the claims receivables from the insurance company:
DR: Accumulated Depreciation xxx
CR: Claims Receivable-
Insurance xxx
*DR: Losses-Condemned
Properties xxx
CR: Fixed Assets xxx
*CR: Miscellaneous Income
Insurance Claims xxx
* To be used only if the Net Book Value of the Fixed Asset is more than the claims from
the insurance.
** To be used only if the Net Book Value of the Fixed Asset is lesser than the claims from
the insurance.
9. To record destroyed/lost assets due to personnel's negligence:
a. To update the accumulated
depreciation
of the asset:
DR: Depreciation Expense xxx
CR: Accumulated Depreciation xxx
b. To set-up claims receivable from the accountable personnel:
DR: Claims for unrelieved
losses-fixed assets xxx
DR: Accum. Depreciation xxx
DR: Losses-Condemned
Prop. xxx
CR: Fixed Assets xxx
CR: Contingent Surplus xxx
c. To record collection from accountable personnel:
DR: Cash with Collecting
Officer xxx
CR: Claims for unrelieved
losses-fixed assets xxx
or
DR: Salaries/Wages xxx
CR: Claims for unrelieved
losses-fixed assets xxx
CR: Other Deductions xxx
CR: Vouchers Payable xxx
DR: Vouchers Payable xxx
CR: Cash-other Banks,
Current xxx
d, To record realization of contingent surplus:
DR: Contingent Surplus xxx
DR: Surplus Adjustment*/
ROA/POA/COCA (xxx)
* Surplus adjustment, if prior years
III. RESPONSIBILITIES
1.
Director, GSD
Ensures compliance by the concerned personnel regarding policies on property maintenance, monitoring and reporting as provided herein.
2.
Director, DAB
a. Ensures compliance to the accounting policies on depreciation, maintenance and dispositions of NFA Fixed Assets as provided herein.
b. Authorizes the
depreciation
charges as determined by the Central Office Accounting Division (COAD-DAB) for the accounting period covered.
3.
Head of Field Offices
a. Authorizes the
depreciation
charges as determined by the accountant for the accounting period covered.
b. Ensures compliance to the accounting policies on depreciation, maintenance and dispositions of NFA Fixed Assets as provided herein.
c. Ensures compliance by the concerned personnel regarding policies on property maintenance, monitoring and reporting as provided herein.
4.
Chief, COAD/Field Accountants
a. Responsible for the determination of Fixed Asset's
depreciation
charges for the accounting period and the preparation of Journal Voucher to book up
depreciation
charges applicable for the period covered.
b. Records transactions involving fixed assets acquisitions, depreciations, maintenance and dispositions in accordance with the accounting policies as provided herein.
c, Maintains a
subsidiary ledger card
per asset and reconciles quarterly the total
subsidiary ledger card
balance against the general ledger account balances.
d. Sees to it that the monthly
subsidiary ledger card
balances tallies with the monthly history card balances in coordination with PMSD-GSD.
5.
Chief, PSMD/Property Custodian
a. Responsible for property maintenance, monitoring and reporting as provided herein.
b. Responsible for determining whether an expenditure for maintaining/restoring/improving the useful conditions of a fixed asset is major or minor.
c. Determines the cost of replaced part to be separated from the value of the principal asset for major renewals as provided herein.
d. Forwards to COAD-DAB/Accountant a copy of the IIR whenever fixed assets are classified to junked assets and other documents regarding fixed assets movements to ensure recording of the transactions.
e, Sees to it that the monthly history card balances tally with the ending balances of the subsidiary ledgers maintained at the COAD-BAS
IV. FLOW CHART
Top Page
EXHIBITS
Schedule of Service Life of NFA Fixed Assets
FA Subsidiary Ledger Card