SOP Library
SOP NO:
FS-GP21
(List of Exhibits/Attachments)
Mission
:
Corporate Administration
Title:
Revised SOP on Depreciation Accounting
Date Approved/Issued:
09/07/2007
Date Effective:
01/01/2004
Digest:
I. TERMS OF REFERENCE
A. Rationale
B. Objective
C. Scope
D. Basis
II. IMPLEMENTING GUIDELINES
1. Tangible Assets Subject to Depreciation
1.1.
All tangible assets that meet the requirement of a PPE as defined above, are subject to depreciation. Receipt of the PPE by the Accountable Officer shall be documented with a Property Acknowledgment Receipt (Form A-8 of the NGAS).
1.2.
However,
small tangible items
with estimated useful life of more than one year but small enough to be considered as PPE (definition lifted from COA Circular No. 2005-002) shall be recorded as inventories upon acquisition and as expense upon issuance. These therefore,
are not subject to depreciation
. These small tangible items include office supplies such as black/whiteboard, mini calculators, sharpener, punchers, staplers, etc.; medical, dental supplies such as forceps, kerosene lamp, inhalator, weighing scale, dental excavator, dental explorer, mortar and pestle, surgical mallet, scissors, etc.; military/security supplies such as compass, flashlight, gun holster, pistol belt, radio battery pack, steel helmet, telescope,etc.; computer peripherals such as computer screen, diskette storage, mouse and mouse pad, printer cable, printer head, printer sharing device, surge protector; janitorial supplies such as dust pan, trash can/wastebasket, and the like; hardware and construction supplies such as hammer, saw, paintbrush, pliers, etc.; monoblock furniture such as tables and chairs; and others.
A complete list of small tangible items as provided in COA Circular No. 2005-002 is attached as
Annex A
. These items shall be documented with an Inventory Custodian Slip which is also provided in the COA Circular. Items not included in the list and also not considered as PPE shall be considered as supplies and materials and therefore shall not be documented with an Inventory Custodian Slip.
1.3
Tangible assets formerly classified as semi-expendable supplies and materials under the section “To be included in July Physical Inventory Taking” of Annex B of SOP No. GS-PD16 (Revised Supplies and Materials Management and Control System) but now meets the requirement of a PPE as defined in this SOP shall now be classified as PPE and shall be subject to depreciation. However, this shall only take effect for items purchased starting July 1, 2005 by virtue of COA Circular 2005-002 which took effect on July 1, 2005 (Accounting Policy on Items With Serviceable Life of More Than One Year But Small Enough to be Considered as Property, Plant and Equipment). Items purchased prior to July, 2005 which has already been charged to MOOE shall not be reclassified to PPE.
1.4. Properties classified as fixed assets or PPE prior to July 7, 1997 (per COA Circular No. 97-005) with a life expectancy of more than one year and with a value of P1,500 and above (i.e. electric fans, clerical tables clerical chairs, etc.) shall still be classified as fixed assets/PPE as provided for under SOP No. GS-PD19 re Revised SOP on Fixed Asset Inventory, Monitoring and Control System. Depreciation for these PPE’s will be adjusted if the estimated useful life differs from what is provided in Annex B of this SOP.
2.
When to Recognize Depreciation
2.1 For Purchases of PPE or Addition to the PPE
a. For purchases of PPE or addition to the PPE, depreciation expense shall start the following month after the receipt of the PPE or addition to the PPE from the supplier (as indicated in the sales invoice), irrespective of the date within the month.
PPEs that passed NFA specifications and which do not require testing, including those that requires testing but passed NFA testing requirement within the same month it was received, should be accepted and released to the user (C.O. departments / RO / PO sections / units) immediately after receipt from the supplier. The date of receipt from the supplier shall be recorded as the asset’s acquisition date and depreciation expense shall be charged to the user department of the PPE.
PPEs that were not accepted within the month it was received due to testing requirement shall be entered in the books as Accounts Payable. Depreciation shall be charged to the user the following month after it was received. However, if the asset is found unacceptable and is returned to the supplier, the entries on Accounts Payable and the depreciation shall be reversed. If the asset is replaced, the acquisition date shall be adjusted accordingly to correspond to the date of receipt of the replacement and the depreciation of the replacement shall start the following month after its receipt. If the replacement is still unacceptable and again replaced, the same procedure shall be repeated until the PPE is finally accepted.
b.
Depreciation of assets already received and accepted from the supplier but not yet released to the user shall be charged to the office that received the asset (e.g. GSD, TRDD, MSD for computers, etc.).
2.2 For Donations
For donations, depreciation expense shall start the following month after acceptance of the donation, irrespective of the date within the month. Depreciation shall be charged to the user of the asset.
2.3 Constructed Assets
a. Assets constructed by NFA ready for use or occupancy during the month shall be depreciated on the succeeding month. Assets still under construction but some part/s is/are already being used, shall not be depreciated unless and until the cost for the specific part being used can be specifically ascertained.
b.
Asset constructed under a contract shall be depreciated only when the asset has been turned over to and accepted by NFA.
2.4 Transfer of Assets Among Offices
a. When an asset is transferred from one NFA office to another (e.g. Central Office to Field Office or vice versa, or from one department/office to another within Central Office, or from one field office to another within or outside the region) the depreciation charges for the month within which it was transferred shall be charged / recorded at the transferring office / origin.
b. Depreciation charges of the transferred asset for the succeeding month shall be charged/recorded at the receiving office.
However, if the asset is transferred again within the month that it was transferred, the depreciation expense for the succeeding month shall be charged/ recorded at the 2nd receiving office.
c. In transferring assets from one office to another (e.g. Central Office to Field Office or vice versa, or from one field office to another within or outside the region) the cost of the asset including the related accumulated depreciation, if any, as well as its equipment history or ledger card, shall also be transferred. The transferring office shall retain a photocopy of the history or ledger card.
3. Computation of Depreciation
3.1. The straight line method of computing depreciation for government property, plant and equipment (PPE) shall be adopted expressed in a formula as follows:
C - RV
D = ________
EUL
Where:D = Depreciation expense for the period
C = Cost of the Asset
RV = Residual Value of the Asset
EUL = Estimated useful life of the asset
3.2
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 handling
c)
Title examination fees
d)
Building permits / licenses
e)
Taxes and customs duties
f)
Brokerage fee
g)
Installation costs
h)
Cost of test or trial runs / break-ins
3.3
A residual value equivalent to ten percent (10%) of the acquisition cost/appraisal value shall be deducted before dividing the same by the Estimated Useful Life.
3.4
For uniformity in the application of useful life and simplification in its computation, the Estimated Useful Life of Property, Plant, and Equipment (PPE) by classification, as presented as
Annex B
of this SOP, shall be used.
3.5
Estimated Useful life of PPE / fixed assets based on SOP No. FS-GP08 on Depreciation Accounting shall be superseded and necessary adjustments shall be made in the books of accounts.
4. Expenditures Incurred During the Service Life of PPE which has an effect on Depreciation
4.1.
Major expenditures that will extend the life of an asset, increase productive capacity, and/or improve operating efficiency shall be
capitalized
, that is, the expenditures shall be charged to the asset PPE account and not simply recorded as an expense.
a. Additions
These are modifications or alterations which increase the physical size or capacity of the asset such as :a) an entirely new unit (e.g. Construction of a new building) and b) expansions, enlargements or extensions of existing assets / facilities (e.g. addition of a wing to a building, or construction of a third story on a two-story building.)
i.
The cost of an addition, which is a new unit, should be depreciated over its useful life.
ii. The cost of an expansion should be depreciated over its useful life or remaining life of the asset of which it is a part, whichever is shorter.
b. Improvements or Betterments
These refer to modifications or alterations which increase the service life or the capacity of the asset. They may represent replacement of an asset or part thereof with one of a better or superior quality. Examples of improvements are: a) a tile roof is substituted for wooden shingles; b) an old motor in a machine (motor vehicle) is replaced by a new and powerful one; and c) replacement of wooden floor by concrete flooring.
These kinds of expenditures are capitalized, the cost of the old part (as determined by GSD) and its accumulated depreciation shall be deducted from the principal asset and the cost of the new part shall be added to the value of the principal asset.
c. Replacements and Renewals
These involve substitution of old PPE units with a new unit but the new asset is not better than the old asset when it was acquired; or substitution of part of a unit with a new part but the unit did not become better than when it was newly acquired. Examples are the replacement of major parts which refers to extraordinary repairs, and replacement of minor parts, which refers to ordinary repairs. The latter is charged to expense.
i. For major replacement and renewals, the cost applicable to the unit or part replaced as determined by GSD-PSMD-PMMS, and its accumulated depreciation shall be removed from the value of the principal asset. Net book value of the part replaced, if not fully depreciated, shall be recorded in the other assets (junked assets) account.
The cost of the new parts must only be added to the value of the principal asset after deducting the cost and accumulated depreciation of the replaced parts.
ii. The cost of major replacement and renewals shall be capitalized and depreciated over the remaining service life of the principal asset to which the replacement was made.
d. Major Repairs
This shall refer to expenditures incurred to restore PPE’s/fixed assets to a fit condition upon their breakdown. These repairs are extra-ordinary in nature and usually benefit future operations by extending the service life of the asset and by increasing the asset's usefulness.
i If the major repairs have extended the life of the asset, the asset repaired shall be depreciated over its new estimated service life based on the new asset book value;
ii If the major repairs did not extend the life of the asset, the capitalized repair cost shall be depreciated over the remaining service life of the asset.
4.2. Minor expenditures on the PPE that benefit only the current period such as maintenance, repairs and minor replacements shall be taken up or recorded as
expense
.
4.3. The responsibility for determining whether an expenditure for restoring or improving the useful conditions of a PPE/fixed asset is major or minor or should be capitalized or expensed shall be vested on the PSMD-GSD (for C.O.) / Adm. and Gen. Services Section (for F.O.) particularly the Supply Officers, in coordination with the Technical Inspection Unit (TIU) of IAS (for C.O.) / Mechanical Plant Operator or Engineer (for F.O.) who have better ideas with regard to the remaining useful life of the PPE.
5. Recomputation of Depreciation due to revised estimated useful life of the asset.
5.1. For NFA PPEs with different estimated useful life as reflected in Annex B of this SOP, from that reflected in Annex A of SOP FS-GP08, the current and subsequent monthly depreciation expenses shall be computed as follows:
CA - RV
RD = ________
RUL
Where:RD = Revised depreciation expense for the period
CA = Carrying Amount*
RV = Residual Value of the Asset
RUL = Remaining useful life of the asset
* Carrying Amount shall be the Cost minus the Accumulated Depreciation (and impairment loss if any).
5.2. Any adjustment arising from the revision on the useful life of the PPE shall be charged to the current and subsequent month’s depreciation expenses of the particular asset.
5.3. PPEs formerly classsified as Semi-Expendable (tangible assets with cost less than P10,000) shall be reclassified to their correct class or category as reflected in Annex B of this SOP to get their estimated useful life and compute for depreciation.
Example: a) printer costing P5,000 and classified as semi-expendable asset before shall be reclassified as PPE-IT equipment with estimated useful life of 5 years; b) office table and chair costing P3,000 and P1,000 respectively shall be reclassified to Furniture and Fixtures with estimated useful life of 10 years.
5.4. Adjustments shall be made effective January 1, 2004, which is the effectivity date of COA Circular No. 2003-7. Illustrative example of the computation of depreciation expense for PPE with revised useful life and PPE formerly classified as semi-expendable is presented in
Annex C
.
5.5. Reclassification of Semi-Expendable Property and Equipment, meeting the requirements of a PPE, to its correct PPE account category, and adjustments related to recomputation of depreciation, shall be supported by a journal entry voucher to be prepared by DAS-COAD / F.O. Accounting Unit.
6. Disposition of Property, Plant, and Equipment
6.1. Retirement of PPEs Which are Fully Depreciated and Unserviceable
PPEs 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
,
Other Assets
.
Retirement of PPE’s / fixed assets shall be effected only based on duly approved Inventory and Inspection Report (IIR) to relinquish the accountability from the accountable officer/employee. A copy of the IIR shall be furnished to COAD-DAS/Accounting unit to reclassify the PPE/fixed assets account to Other Assets (Junked Assets).
6.2. Fully Depreciated Property But are Still Serviceable
PPEs which are fully depreciated but are still serviceable and remain useful to the operations of NFA shall still be included as part of the gross PPE/fixed assets account as well as the related accumulated depreciation as part of the total accumulated depreciation. However, the total cost of fully depreciated assets shall be disclosed in the notes to the financial statements. PPEs that are fully depreciated but are still serviceable shall be included in the list of insurable properties being submitted to GSD (for C.O. property) / R.O. AGS / P.O. AGS (for F.O. property) for renewal of insurance coverage annually.
6.3. Accidentally Destroyed / Lost Assets
a.
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 the concerned officers/employees of their accountability.
b.
Insurance claims shall be accordingly filed with the local GSIS by PSMD-GSD / R.O. / P.O. AGS to indemnify NFA of the damages/losses incurred. COAD-DAS / F.O. Accounting Unit shall be furnished a copy of the corresponding report and insurance claim to take up the destroyed/lost asset’s net book value (representing amount of loss sustained by NFA) as Due from GOCC - GSIS (insurance claim receivable). If the insurance claim receivable from GOCC-GSIS for the destroyed/lost asset is lower than its net book value, the difference shall be taken up as “loss”.
c.
Once the insurance claim is collected, the DTBFM-Cash Division / RO / PO Cashier shall inform in writing COAD-DAS / F.O. Accounting Unit of the collection made, indicating therein the necessary details of the particular claim collected, together with necessary supporting documents, for proper matching against claims receivables / loss previously set up in the books.
6.4. Destroyed / Lost Assets Due to Personnel’s Negligence
This shall refer to those PPEs/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 loss of PPE / 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 sound value of the asset which is computed as:
Sound value = fair market value - estimated accumulated
of the asset of the asset depreciation
where: fair market value is equivalent to the prevailing market price of the asset to be determined based on the result of canvass of prices to be conducted by GSD / RO / PO AGS
PPEs 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.
7. Internal Control
7.1. Primary accountability for the PPE’s shall be vested upon the accountable officer/employee to whom the PPE was issued
7.2.
The Heads of Office shall be held primarily responsible over the management expending, utilization of the NFA's PPE’s in accordance with the existing policies and regulations, and safeguarding against loss or wastage through illegal or improper disposition.
7.3. The Property Monitoring and Maintenance Section (PMMS) of the Property and Supply Management Division (PSMD) of the General Services Directorate (GSD) / Regional/Provincial Property Units of Field Offices shall be held responsible for monitoring all movements of PPE’s and the proper documentation of all PPE transactions as well as reporting the same to COAD-DAS / Regional/Provincial Accounting units for the proper allocation and charging of depreciation expenses to the concerned offices every accounting period.
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.
7.4. The Department for Accounting Services (DAS) and all F.O. Accounting Unit shall strictly adhere to the policies on depreciation accounting as provided herein to maintain an accurate book value of PPE’s.
a.
A subsidiary ledger card shall be maintained by COAD-DAS / F.O. Accounting Unit for each item of PPE/fixed asset
(
Exhibit 1
)
. The subsidiary ledger card shall provide for the recording of acquisitions and disposals of assets and the related depreciation charges, as well as capitalized expenditures. It shall also reflect the asset's net book value.
b.
A lapsing schedule of depreciation for all PPE
(Exhibit 2)
shall be prepared monthly to support the journal entry voucher in recording depreciation expenses. The Journal Entry Voucher (JEV) shall be duly certified correct by the Division Chief, COAD -DAS / Regional / Provincial Accountant.
c.
The DAS-COAD / F.O. Accounting Unit 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.
d.
COAD-DAS / F.O. Accounting Unit in coordination with GSD-PSMD / F.O. Adm. & Gen. Services Section particularly the Supply Officer, shall see to it that the monthly balances of the subsidiary ledgers tallies with the history card balances being maintained by GSD-PSMD / F.O. Adm. & Gen. Services Section.
8. Accounting for Depreciation of Property, Plant and Equipment (PPE)
8.1. The Central Office Accounting Division (COAD) of the Department for Accounting Services (DAS) and all Field Office Accounting Units shall be responsible for the determination of PPE depreciation and succeeding adjustments to the PPE account affecting the PPE and its related accumulated depreciation.
8.2. Depreciation charges of PPE 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 other assets (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.
8.3. 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.
8.4. For Accounting Treatment in recording Depreciation please refer to
Annex D
.
Account codes to be used in this SOP shall follow what is prescribed in the New Government Accounting System (NGAS)
.
III.
RESPONSIBILITIES
1. COAD-DAS / F.O. Accounting Unit
1.1. Responsible for the determination of PPE/Fixed Asset's depreciation charges for the accounting period and the preparation of Journal Entry Voucher with supporting depreciation lapsing schedule to book up depreciation charges applicable for the period covered.
1.2. Records transactions involving PPE/Fixed Assets acquisitions, depreciation, maintenance and dispositions in accordance with the accounting policies as provided herein.
1.3. Maintains a subsidiary ledger card per asset and reconciles quarterly the total subsidiary ledger card balance against the general ledger account balances.
1.4. Sees to it that the monthly subsidiary ledger card balances tally with the monthly history card balances in coordination with PMSD-GSD / Property Units.
1.5. Recomputes revised depreciation charges due to change in estimated useful life of the PPE and prepares adjustment to take up depreciation charges for PPE’s formerly classified as semi-expendable property and equipment.
2. PSMD-GSD / F.O. Adm. & Gen. Services Section particularly the Property Custodian
2.1. Responsible for property maintenance, monitoring of all movements of PPEs, proper documentation of all PPE transactions and reporting the same to COAD-DAS/ F.O. Accounting units for the proper allocation and charging of depreciation expenses to the concerned offices/units every accounting period.
2.2. Responsible for determining whether an expenditure for restoring / improving the useful conditions of a PPE/fixed asset is major or minor in coordination with the TIU-IAS/Mechanical Plant Operator/Engineer.
2.3. Determines the cost of replaced part to be separated from the value of the principal asset for major renewals as provided herein in coordination with TIU-IAS/Mechanical Plant Operator/Engineer.
2.4. Forwards to COAD-DAS / F.O. Accounting Unit a copy of the IIR whenever PPE/fixed assets are classified to other assets (junked assets) and other documents regarding PPE/fixed assets movements for proper recording of the transactions.
2.5. Sets a regular date for the reconciliation of history card and subsidiary ledger cards of GSD and DAS at least one week before the end of each month.
3. Technical Inspection Unit (TIU)-IAS / Mechanical Plant Operators/Engineers
3.1. In coordination with the PSMD/GSD and/or the Supply Officer determines whether an expenditure for restoring/improving the useful conditions of a PPE/Fixed Asset is major or minor or whether that expenditure should be capitalized or recorded as expense.
3.2. In coordination with the PSMD/GSD and/or the Supply Officer determines the cost of replaced part to be separated from the value of the principal asset for major renewals.
This SOP supersedes SOP no. FS-GP08 on Depreciation Accounting issued on August 16, 1989. All rulings, policies and/or issuances inconsistent herewith are hereby superseded.
This revised SOP shall take effect retroactive January 1, 2004 by virtue of COA Circular No. 2003-7 with took effect January 1, 2004. However, item II.B.1.3 (page 4) of this SOP shall only take effect on items purchased starting July 1, 2005 by virtue of COA Circular 2005-002 which took effect on July 1, 2005.
Date Approved:
September 07, 2007.
III. RESPONSIBILITIES
IV. FLOW CHART
Top Page
EXHIBITS
List of Tangible Assets That May Be Considered as Inventories
Table of Estimated Useful Life of Property, Plant and Equipment
Property, Plant and Equipment Ledger Card
Accounting Treatment (Account Codes shall follow the NGAS)
Illustrative Computation of Revised Depreciation Expense
Monthly Depreciation Charges of Property Plant and Equipment (Lapsing Schedule)