A. Rationale

B. Objective

C. Scope

D. Basis

A. Payment-In-Kind (PIK)

1. NFA obligations maybe paid in the form of rice at the option of the Creditors. Creditors may include but are not limited to MTS sellers, vessel, contractors, truck haulers, integrated service contractors , warehouse owners, in-warehouse haulers, etc.

2. PIK shall be resorted to only under the following conditions :

2.1 during tight financial conditions

2.2 during periods of excess rice inventory in order to decongest the warehouses

3. The PIK system shall be implemented only when authorized by the Administrator with recommendations from Assistant Administrator for Stabilization and Assistant Administrator for Finance. The Authority shall state the period coverage (effectivity and termination dates) to implement the PIK system.

4. Well-milled or regular milled rice shall be issued under this program. RMR however should be given priority. Stocks shall be valued based on existing authorized retailer's price at the time of payment.

5. Creditors opting for PIK shall be required to secure NFA lincese if they intend to sell the rice to the public.

B. Documentation and Procedures

1. Payment-In-Kind Approval Slip

1.1 This form shall be used to indicate the creditor's intention to accept rice as payment for services he has rendered to NFA.

1.2 This form shall be accomplished by the creditor in duplicate (original-Accounting ; duplicate-Marketing). The required documents for the claims shall be attached to the form and shall be forwarded by the Marketing Operations Unit to the Accounting Unit for processing.

1.3 The amount of witholding taxes shall be deducted from the claims thereby reducing the number of bags to be issued.

1.4 Example of computation of Maximum Number of bags allowable for Payment-in-Kind.

Amount of claims for hauling
charges (Reference) P 6,100.00
Less : 10% witholding Tax 610.00
----------------
Net Claims P 5,490.00

Value per bag of rice 450.00
No. of bags (P5,490.00/450.00) 12.20 bags

Maximum no. of bags 12 bags
(drop decimal points) ========

The Creditor may opt to avail of the PIK up to 12 bags only. Balance shall be paid in check through the usual disbursement voucher system.

1.5 The form shall be forwarded to the Provincial Manager for approval and the duplicate copy shall be forwarded to the Marketing Operations for the preparation of Authority to Isuse (AI).

1.6 The accounting copy of the PIK Approval Slip shall be attached to the journal voucher upon setting up of the liability account.

C. Stocks Withdrawal

Withdrawal shall only be made in the province where the obligation was incurred. WSI shall be prepared by the Warehouse Supervisor indicating PIK-Services as nature of transaction. The creditor shall acknowledge receipt of stocks on WSI.

D. Reporting

The inventory Schedule of the Trial Balance Report shall reflect a separate caption for Issues-under PIK Services. This shall be the basis for application to future remittances by Central Office.

E. Accounting Treatment

1. No fund transfer shall be effected from account GOF to LCC. Amount not disbursed due to PIK shall be applied to future remittances.

2. Journal Entries (Using example computation)

2.1 Set-up of obligation

DR: Appropriate Asset or Expense Account 6,100

2.2 To record issuance of stock

DR: Accrued Expense Payable 5,400
DR: Losses - PIK
Assuming BV is P10
(12 x 50 x 10 = 6,000- 5,400) 600
CR: Inventory Items for Sale 6,000

2.3 To record payment for Cash portion

VRJ

DR: Accrued Expense/Accounts
Payable 90
CR: Vouchers Payable 90

CCRJ

DR: Vouchers Payable 90

CR: Cash 90

2.4 To record remittance to BIR for tax withheld

VRJ

DR: Trust Liabilities - BIR 610

CR: Vouchers Payable 610

CCRJ

DR: Vouchers Payable 610

CR: Cash 610

3. The Accounting Unit shall maintain subsidiary ledgers of Accrued Expense/
Accounts Payable - PIK Services per creditor. This shall be reconciled with the
General Ledger at the end of every month. Any discrepancy shall be investigated
and adjusted accordingly.

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EXHIBITS

Payment-In-Kind Approval Slip